Under President Trump, the Department of Education started telling the first of millions of Americans whose government student loans are past due that their wages will be taken in a few months. The news comes at the same time that the Trump government starts to collect on millions of loans that haven’t been paid back.
The garnishments will happen in waves. In early June, the first users will see their pay taken out. On Monday, the Education Department began sending 30-day notices to about 195,000 people who had not paid their loans. These notices told them that they will be subject to the Treasury Offset Program, which collects debts owed to state and government agencies that are past due. Treasury can take money from tax returns, wages, Social Security payments, and disability benefits under this program to pay off debts that are past due.
“All 5.3 million defaulted borrowers will receive a notice from Treasury that their earnings will be subject to administrative wage garnishment,” the department says in its first announcement of the move. This will happen later this summer.
Since the COVID-19 outbreak began, the Education Department has not been able to collect on loans that have not been paid back. Now that it wants to start the steps again, millions of people could lose more money at a time when the economy is very uncertain. TransUnion’s study released Monday says that more than one in five borrowers are likely to not pay back their loans. This is more than the number of borrowers who were at risk before the pandemic.
The study shows that 20.5% of borrowers have a payment that is 90 days or more past due. This is up from 11.5% of borrowers in February 2020. “The current rate of delinquency represents the highest figure ever recorded,” it says. There may be more of them than it seems.
When people who haven’t paid their bills are sent to collections, they may have less money to pay their bills, which can cause even more debt to build up and “significant drops” in their credit score. The Consumer Financial Protection Bureau says that people whose Social Security benefits are garnished are especially likely to have bad financial and health results.
This week, Sen. Kirsten Gillibrand (D-N.Y.) wrote a letter to Linda MacMahon, the secretary of education, pointing out the bad economic situation and asking the Cabinet member to describe an outreach program and other steps the department is taking to help regular Americans deal with their money problems.
“Withholding income from borrowers will unnecessarily exacerbate economic strains in local economies while New Yorkers worry about a tenuous economy and potential recession,” she said. “I’m concerned that the timing could not be worse for any changes in student loan repayment policies.”
In order to get out of default, borrowers must pay back their loan in full. The department agrees that this is “not a practical option for most borrowers.” They can also fix up their loans or combine them into one. The process of loan rehabilitation takes a few months, but it varies on the type of loan the borrower has and who is servicing it. The borrower may have their wages taken away until either the loan is paid off or at least five of the recovery payments are made. It’s faster to consolidate debt, but you might end up paying more in interest. Also, borrowers can’t combine their loans until the order to take their wages has been lifted.
Ellen Keast, a spokeswoman for the Department of Education, says that people who are behind on their payments or in default should start paying back their loans right away to avoid the effects of default. “A borrower with loans in default can stop Treasury Offset and wage garnishment by entering a rehabilitation agreement and making the first five of the nine required payments.”
Before they fall behind on their payments, the Education Department wants borrowers to make a payment, sign up for an income-driven payback plan, or sign up for loan rehabilitation. The Trump government has fired Education Department employees and is trying to break it up completely. However, the department says it has increased its customer service to better assist borrowers.