How do I fix a false report on a defaulted student loan?

I am applying for a student loan and I recieved a SAR report that I owe a student loan that I paid through garnished wages.

How do I fix a false report on a defaulted student loan?

Unfortunately, the process won't be as simple as, say, fixing an error in your credit report (where the burden of proof is on the creditor), but it is doable.

The information about your loan history that appears on the SAR comes from NSLDS, the National Student Loan Data System. The easiest way to get NSLDS data updated is to have your school do it. You will probably need to provide them with documentation that your default has been resolved -- usually this means obtaining written communication from the lender or collection agency with whom you worked while your wages were being garnished. Even if NSLDS isn't updated, your school can still give you Federal Student Aid (with the proper documentation), but you should do what you can to get it updated so that this won't happen annually.

How do I fix a false report on a defaulted student loan?

contact the lender, you need to get that fixed!