Student Loan Borrowers in Default Face Wage Garnishment
The Trump administration will begin garnishing wages from student loan borrowers who are in default early next year, according to the Education Department. Approximately 1,000 defaulted borrowers will receive notices the week of Jan. 7. The number of borrowers who are notified will increase each month.
Millions of student borrowers are in default, meaning they’re 270 days past due on payments. At that point, loan holders are at risk of having 15% of their pay docked by the government, with the money going toward the outstanding debt. The department must notify borrowers 30 days in advance before their wages can be garnished.
In April, more than 5 million borrowers had not made a monthly payment in 360 days, according to the Education Department. At the time, the department said that number could swell to 10 million in a few months. After the pandemic-era pause on student loan payments ended in May, borrowers have had to reassess the state of their loans and budgets.
A Biden-administration grace period, during which late or missed payments were not counted against credit scores, ended last fall. Since then, millions of borrowers have seen hits to their credit ratings.
What You Can Do to Prepare
“The most important thing borrowers can do before administrative wage garnishment restarts is to log into studentaid.gov to check whether their federal student loans are in default and take steps now to remove them from default,” said Kyra Taylor, staff attorney at the National Consumer Law Center.
Taylor said it’s not uncommon for borrowers to be unaware that their loans are in default. If borrowers attended college or graduate school during different periods of time, or if they have different federal loan types, they may also have multiple student loan servicers. If that’s the case, you should act now to get your loans out of default and back into good standing by either entering a rehabilitation agreement, where you must make nine consecutive payments based on your income, or by consolidating your loans into a new federal Direct Loan.
“Because this hasn’t happened for so long, there are many people who have no idea they’re at risk,” said Aissa Canchola Bañez, policy director at the Student Borrower Protection Center.
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Wait times for student borrowers attempting to contact their loan servicers have been long, with many dropped calls, in part due to layoffs at the Education Department. Bañez recommends contacting your congressperson, using a casework tool that can guide you through submitting a constituent request.
“These offices have entire teams dedicated to constituent casework for when you have an issue with a federal agency, such as the Department of Education,” she said. “So you can request assistance from your member of congress — your representative or senator.”
What Happens if You Remain in Default
Until past due payments are paid or the loan’s default status is resolved, borrowers are at risk of having up to 15% of their wages deducted directly from their paychecks. The Department of Education has sent notices to borrowers warning that tax refunds and wages could be withheld starting this summer if borrowers don’t take steps to restart payments.
Richelle Brooks, 37, an education administrator based in Los Angeles, said she’s received warnings and notices about the resumption of collection of her loans. For several degrees, she still has $239,000 in outstanding debt, and she was informed her monthly payments on those loans will be roughly $3,000.
“I can’t afford it,” she said. “We just came out of the moratorium — not paying for five years. People getting these notices — they’re terrified. I’m uneasy, too.”
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Brooks said she’s an informed borrower who stays up to date on each development and who knows her options. She plans to enroll in coding classes, at least half-time, which could place her loans in deferment, so she wouldn’t be required to make monthly payments, while she makes a financial plan.
Some Options if You Fear Your Wages Will Be Garnished
There’s still time to take action. According to Taylor, the Department of Education must provide 30 days notice before it sends a garnishment order to your employer. During that time, you can request a hearing to object by telling the department that the garnishment would cause you financial hardship.
To do this, you must make your hearing request in writing, postmarked no later than 30 days after the garnishment order. Your loan holder will then arrange the hearing. If you’re unsure who your loan holder is, you can contact the Education Department’s Default Resolution Group.
If you were laid off from your last job, you can also object to garnishment if you have not been in your current job for 12 consecutive months. You can further request a hearing and object if you submitted an application for certain kinds of statutory discharges and those have not yet been decided.
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“If the borrower requests a hearing within 30 days after receiving the garnishment notice, the department cannot start garnishment until it issues a decision on the borrower’s objections and financial hardship request,” Taylor said.
You can request a hearing after the 30-day period, but in those cases, the department will generally not stop garnishing your wages while the hearing request is pending.
Conclusion
The Education Department’s decision to begin garnishing wages from student loan borrowers who are in default is a significant development that could affect millions of people. Borrowers who are at risk of having their wages garnished should take immediate action to avoid this outcome. By understanding their options and taking steps to get their loans out of default, borrowers can protect their financial well-being and avoid the consequences of wage garnishment.
Frequently Asked Questions
Q: What happens if I don’t
