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The U.S. Department of Education announced on April 21 that the Office of Federal Student Aid (FSA) will restart its student debt collections on May 5.
The announcement marks the first time in five years that the federal government may penalize Americans who fall behind on their student loan payments. Part of that penalization includes the resumption of “involuntary collections,” which can lead to the garnishing of wages. According to the announcement, borrowers will begin receiving collection notices through the U.S. Treasury Offset Program before any further action is taken.
“The Department will also authorize guaranty agencies that they may begin involuntary collections activities on loans under the Federal Family Education Loan Program,” per the press release. There is the disclaimer, though, that “all FSA collection activities are required under the Higher Education Act and conducted only after student and parent borrowers have been provided sufficient notice and opportunity to repay their loans under the law.”
Involuntary collections are “one of the harshest consequences borrowers can face when federal student loans fall into default,” says Ken Ruggiero, co-founder and CEO of Ascent Funding, an education loan provider. This occurs typically after 270 days, or close to nine months, of missed payments.
“It’s an aggressive, automated system that often catches borrowers off guard and deepens their financial hardship,” says Ruggiero. “In addition to the financial hardship, the student borrower is often embarrassed when their employer is notified and then implements wage garnishments.”
Here is what student borrowers should know about involuntary collections, and the advice experts offer:
What can be withheld under involuntary collections?
Through involuntary collections, the government can garnish wages, withhold tax refunds, and seize portions of Social Security checks and other benefit payments to go toward paying back the federal loan.
According to the Treasury Department, for those who have defaulted on their federal loans, the Treasury Offset Program can withhold to 100% of federal tax refunds, up to 15% of federal salaries, up to 15% of Social Security and Railroad Retirement benefits, up to 25% of federal retirement payments, 100% of payments to vendors, and 100% of travel payments for federal employees
Wage garnishment, which the Education Department’s announcement said will begin late in the summer, is when your loan holder can order your employer to withhold up to 15% of your disposable pay to collect your defaulted debt, without taking you to court.
What have Trump officials said about involuntary collections?
Department of Education Secretary Linda McMahon wrote an opinion piece in the Wall Street Journal in conjunction with the announcement of collections restarting, in which she articulated the department’s outlook.
“Borrowers who don’t make payments on time will see their credit scores go down, and in some cases, their wages automatically garnished,” she wrote. “Why? Not because we want to be unkind to student borrowers. Borrowing money and failing to pay it back isn’t a victimless offense.”
Jonathan Collins, assistant professor of political science and education at Teachers College, Columbia University, says that though this is a pre-2020 system, there is a difference here with the Trump Administration.
“Usually, standard practice for the federal government is to work with the borrowers, and if there are issues with repayment, they usually grant forbearance periods, and you can apply for extension on forbearance periods,” Collins says. “But, what [The Trump Administration is] trying to do is get rid of, if not drastically reduce, the amount of people who are in this forbearance zone.”
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