What are my legal options to solve this situation?

I'd send a certified letter, return receipt requested, to the collection agency, saying what you've written here about the forgery and that you knew nothing about the loan and never saw any of the money.  Keep a copy of the letter for yourself, with the mailing receipt and the return receipt when it comes back.  I hope that's the end of the matter.

Otherwise, you'll see them in court.  They can't garnish your wages without a judgment, and they can't get a judgment without going to court after giving you notice in writing of that.