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Yahoo
5 days ago
- Business
- Yahoo
How to protect your paycheck from federal student loan garnishment
The federal government has strong collection powers for defaulted federal student loans, such as Administrative Wage Garnishment. Borrowers have rights to appeal wage garnishment and protection against employer retaliation. Borrowers should update their contact information and explore options for getting out of default by contacting the Default Resolution Group. The U.S. Department of Education announced on April 21, 2025, that it would restart enforced collection of defaulted federal student loans on May 5, 2025, for the first time in five years. During the pandemic, the Coronavirus Aid, Relief and Economic Security (CARES) Act not only paused payments and waived interest on federal student loans, but also suspended involuntary collection of defaulted federal student loans. These provisions were extended multiple times, and then followed by a 12-month on-ramp that retroactively placed delinquent loans into a series of 3-month administrative forbearances. This ended on September 30, 2024. Of the 7.7 million borrowers who were in default prior to the pandemic, 5.3 million remain in default. If you are among them, you should know that the U.S. Department of Education has very strong powers to compel repayment of defaulted federal student loans. These include Administrative Wage Garnishment and the offset of income tax refunds and Social Security disability and retirement benefit payments. Make sure you understand how wage garnishment works and what you should do if you receive a notice. Administrative Wage Garnishment typically begins after a 30-day notice to the borrower. If you have a serious delinquency or are in default on your federal student loans, update your contact information with the U.S. Department of Education and your loan servicer to ensure you receive any notices concerning your debt. The wage garnishment notice will be mailed to the borrower's last known address. The U.S. Department of Education does not need the borrower's current contact information to start wage garnishment, as they can get the name of the borrower's employer through tax records. The wage garnishment order will be sent to the borrower's employer. Once AWG begins, the U.S. Department of Education can require employers to withhold up to 15 percent of a borrower's disposable pay to repay defaulted federal student loans, without needing a court order. Disposable pay refers to what's left of the borrower's wages after deducting health insurance premiums and any amounts required by law, such as taxes. After garnishment, the borrower must be left with at least 30 times the federal minimum wage per week (currently $217.50). This is intended to ensure that the borrower can pay for basic living expenses. If the borrower is already subject to garnishment for other reasons, the combined garnishment amount can exceed 25 percent of disposable pay. Can I be fired for having my wages garnished? Federal law protects borrowers from employer retaliation. An employer cannot terminate or take disciplinary action against an employee solely because of Administrative Wage Garnishment. Should an employer retaliate, the borrower can file a lawsuit seeking attorneys' fees, back pay, reinstatement and punitive damages. Garnished amounts are applied first to collection costs, then to interest and finally to the principal balance of the defaulted loans. Wage garnishment continues until the entire amount owed by the borrower, including interest, penalties and collection costs, is paid in full. If any excess amounts are garnished, they will be refunded to the borrower. However, the ED does not pay interest on such refunds. Borrowers have options for avoiding Administrative Wage Garnishment if they act quickly. Look out for collections scams Borrowers who are in default should beware of student loan scams. Some scams will pretend to be debt collection agencies and demand hundreds of dollars from the borrowers' wages. Wage garnishment orders are sent by the federal government to the borrower's employer, not the borrower. You can verify suspicious demands for payment by contacting the Default Resolution Group at the U.S. Department of Education. Borrowers who receive a notice of Administrative Wage Garnishment should ask to see records relating to their debt, to ensure that the balance due is accurate. They should also evaluate whether they have grounds for an appeal and promptly file a request for a hearing before an administrative law judge if so. If this request is filed within 30 days of receiving the garnishment notice, the hearing must occur before the wage garnishment order is issued. For requests filed after the 30-day window, the hearing may take place after the garnishment begins. The hearing official is required to issue a final written decision within 60 days of the petition's filing date. Common grounds for appeal Job loss. If a borrower was involuntarily separated from their employer, Administrative Wage Garnishment cannot be imposed until they have been continuously employed for at least 12 months. Financial hardship. Borrowers can challenge Administrative Wage Garnishment if it will result in financial hardship, which is defined as 'an inability to meet basic living expenses for goods and services necessary for the survival of the debtor and his or her spouse and dependents.' Basic living expenses include essential expenses like food, rent, utilities, clothing and medical bills. Borrowers may be required to provide documentation of income and basic living expenses, which will be compared with the IRS Allowable Living Expense (ALE) for families of the same size and income. If the borrower's basic living expenses are higher, they must prove that the higher amounts are reasonable and necessary. Documentation of eviction or foreclosure, utility disconnection and homelessness can be helpful. A successful appeal based on financial hardship may result in a reduced wage garnishment amount or a temporary suspension. Bankruptcy. Administrative Wage Garnishment is suspended when a borrower files for bankruptcy and remains suspended until the bankruptcy proceedings have concluded. Rehabilitation. If a borrower has successfully made five qualifying monthly payments under a loan rehabilitation agreement, the Administrative Wage Garnishment will be suspended. Debt paid in full or discharged. Garnishment will end if the borrower provides proof that the debt has been paid in full or discharged. Incorrect amount of debt. Borrowers can dispute the amount of the debt by presenting evidence of a different amount that is owed. Non-existence of the debt. Borrowers can dispute the existence of the debt by providing proof that no debt exists or that the debt is not their responsibility. Not delinquent. A borrower can challenge the wage garnishment by proving that the borrower is not delinquent or in default on the debt. If an appeal is granted, it usually results in a temporary suspension of the wage garnishment, so the borrower may need to submit an appeal annually. If the borrower has Direct Loans, the borrower can enter into a loan repayment agreement or loan rehabilitation agreement with the U.S. Department of Education's Default Resolution Group. If the borrower has FFEL program loans, the borrower can make arrangements with the guarantee agency that holds the borrower's defaulted loans. Keep in mind: Entering an agreement and making your first payment within 30 days of the date listed on your notice will prevent wage garnishment. You can return the loans to a current status by rehabilitating them. Entering a rehabilitation agreement and making your first payment within 30 days of the date listed on your AWG notice will prevent wage garnishment. Keep in mind: If garnishment has already begun, it will continue until you complete loan rehabilitation. There are two methods of rehabilitating defaulted federal student loans. One involves making 9 out of 10 consecutive, on-time, full, voluntary, reasonable and affordable payments as part of a loan rehabilitation agreement. This type of rehabilitation removes the default from the borrower's credit history. Removing the default from the borrower's credit history will make it easier for them to get a credit card, auto loan or mortgage. A quicker method to remove loans from a defaulted status is to include them in a Federal Direct Consolidation Loan. Consolidating your defaulted student loans restores them to a current status immediately and stops wage garnishment. However, this method has a few drawbacks: Consolidation adds the interest and collection costs to the loan balance. Consolidation does not remove the default from the borrower's credit history. The borrower may be required to repay their loans under an income-driven repayment plan. If you have questions about your student loans, you can call the Federal Student Aid Info Center (FSAIC) at 1-800-433-3243. If your loans are in default, contact the Default Resolution Group at the U.S. Department of Education at 1-800-621-3115 or visit for guidance about getting out of default, rehabilitating federal student loans and wage garnishment.
Yahoo
04-05-2025
- Business
- Yahoo
Student loan collections restart May 5: Here's what you need to know
The federal government on Monday will resume collecting defaulted student loan payments from millions of people for the first time since the start of the pandemic, officials said. The Trump administration said it would collect the debt through a Treasury Department program that withholds payments through tax refunds, wages and government benefits. The U.S. Education Department has not collected on defaulted loans since March 2020. Of the nearly 43 million people who owe money, only a little more than a third have made regular payments, the agency said. In the last five years, student debt has grown to $1.6 trillion, officials said. Education Secretary Linda McMahon said taxpayers would now be saved from shouldering that cost. 'American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies,' McMahon said in an April 21 news release announcing the restart of collections. The move comes after years of legal back-and-forth about loan forgiveness and at a time when advocates say student borrowers are stretched thin from inflation and growing concerns over the cost of living. 'We're in the worst student loan landscape that we've ever been before,' said Sabrina Calazans, executive director of the Student Debt Crisis Center, a nonprofit that advocates for student debt cancellation. 'The plans and proposals being put forth by the Trump administration are going to harm millions of individuals and families,' Calazans added. 'It's going to create a financial catastrophe where folks will not be able to meet their basic needs.' All borrowers in default should have received an email from the Office of Federal Student Aid alerting them to the changes. Officials said the email urges borrowers to contact the Default Resolution Group to either make a monthly payment, enroll in an income-based repayment plan or sign up for loan rehabilitation — a process that can erase a default status if the borrower makes a set of payments during a specific time frame, depending on the type of loan. To schedule monthly payments, borrowers who have not changed their marital status or income would have needed to send their most recent Federal 1040 tax return to the Education Department, according to instructions outlined on the Default Resolution Group's website. The Education Department said it will be using the Treasury Department's Offset Program to collect on the debt by withholding payments through tax refunds, salaries and benefits like Social Security payments. Under the program, the government can withhold entire federal tax refunds and up to 15% of a federal worker's disposable pay. The government said the FSA would send notices about wage garnishment later this summer. In an April opinion piece published in The Wall Street Journal, McMahon said borrowers who don't make payments on time will see their credit scores go down, 'and in some cases their wages automatically garnished.' Before leaving the White House in January, then-President Joe Biden announced his administration had canceled student debt for more than 5 million people, including many who attended schools that defrauded students, like DeVry University, as well as public service workers and those with total and permanent disabilities. 'Since Day One of my Administration, I promised to ensure higher-education is a ticket to the middle class, not a barrier to opportunity, and I'm proud to say we have forgiven more student loan debt than any other administration in history,' Biden said in a statement at the time. In its April news release, however, Trump's Education Department made it clear that 'there will not be any mass loan forgiveness' going forward. McMahon blamed the Biden administration for transferring hundreds of billions of dollars in debt to taxpayers and keeping borrowers in a 'confusing limbo' about payments. 'The executive branch does not have the constitutional authority to wipe debt away, nor do the loan balances simply disappear,' she said. Trump paused collection on most federal student loans in March 2020, and Biden continued to pause collection when he took office in 2021. Biden had proposed allowing eligible borrowers to cancel up to $20,000 in debt until the U.S. Supreme Court ruled against his student loan debt relief plan in 2023. The plan would have cost more than $400 billion, and about 43 million Americans would have been eligible to participate. In the Wall Street Journal op-ed, McMahon said Biden 'never had the authority to forgive student loans across the board.' She said resuming collections was not an act of unkindness to student borrowers but an act of fairness. 'Borrowing money and failing to pay it back isn't a victimless offense. Debt doesn't go away; it gets transferred to others,' she said. 'If borrowers don't pay their debts to the government, taxpayers do.' This article was originally published on
NBC News
04-05-2025
- Business
- NBC News
Student loan collections restart May 5: Here's what you need to know
The federal government on Monday will resume collecting defaulted student loan payments from millions of people for the first time since the start of the pandemic, officials said. The Trump administration said it would collect the debt through a Treasury Department program that withholds payments through tax refunds, wages and government benefits. The U.S. Education Department has not collected on defaulted loans since March 2020. Of the nearly 43 million people who owe money, only a little more than a third have made regular payments, the agency said. In the last five years, student debt has grown to $1.6 trillion, officials said. Education Secretary Linda McMahon said taxpayers would now be saved from shouldering that cost. 'American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies,' McMahon said in an April 21 news release announcing the restart of collections. The move comes after years of legal back-and-forth about loan forgiveness and at a time when advocates say student borrowers are stretched thin from inflation and growing concerns over the cost of living. 'We're in the worst student loan landscape that we've ever been before,' said Sabrina Calazans, executive director of the Student Debt Crisis Center, a nonprofit that advocates for student debt cancellation. 'The plans and proposals being put forth by the Trump administration are going to harm millions of individuals and families,' Calazans added. 'It's going to create a financial catastrophe where folks will not be able to meet their basic needs.' What happens now? All borrowers in default should have received an email from the Office of Federal Student Aid alerting them to the changes. Officials said the email urges borrowers to contact the Default Resolution Group to either make a monthly payment, enroll in an income-based repayment plan or sign up for loan rehabilitation — a process that can erase a default status if the borrower makes a set of payments during a specific time frame, depending on the type of loan. To schedule monthly payments, borrowers who have not changed their marital status or income would have needed to send their most recent Federal 1040 tax return to the Education Department, according to instructions outlined on the Default Resolution Group's website. The Education Department said it will be using the Treasury Department's Offset Program to collect on the debt by withholding payments through tax refunds, salaries and benefits like Social Security payments. Under the program, the government can withhold entire federal tax refunds and up to 15% of a federal worker's disposable pay. The government said the FSA would send notices about wage garnishment later this summer. In an April opinion piece published in The Wall Street Journal, McMahon said borrowers who don't make payments on time will see their credit scores go down, 'and in some cases their wages automatically garnished.' What happened to loan forgiveness? Before leaving the White House in January, then-President Joe Biden announced his administration had canceled student debt for more than 5 million people, including many who attended schools that defrauded students, like DeVry University, as well as public service workers and those with total and permanent disabilities. 'Since Day One of my Administration, I promised to ensure higher-education is a ticket to the middle class, not a barrier to opportunity, and I'm proud to say we have forgiven more student loan debt than any other administration in history,' Biden said in a statement at the time. In its April news release, however, Trump's Education Department made it clear that 'there will not be any mass loan forgiveness' going forward. McMahon blamed the Biden administration for transferring hundreds of billions of dollars in debt to taxpayers and keeping borrowers in a 'confusing limbo' about payments. 'The executive branch does not have the constitutional authority to wipe debt away, nor do the loan balances simply disappear,' she said. Trump paused collection on most federal student loans in March 2020, and Biden continued to pause collection when he took office in 2021. Biden had proposed allowing eligible borrowers to cancel up to $20,000 in debt until the U.S. Supreme Court ruled against his student loan debt relief plan in 2023. The plan would have cost more than $400 billion, and about 43 million Americans would have been eligible to participate. In the Wall Street Journal op-ed, McMahon said Biden 'never had the authority to forgive student loans across the board.' She said resuming collections was not an act of unkindness to student borrowers but an act of fairness. 'Borrowing money and failing to pay it back isn't a victimless offense. Debt doesn't go away; it gets transferred to others,' she said. 'If borrowers don't pay their debts to the government, taxpayers do.'
Yahoo
30-04-2025
- Business
- Yahoo
Federal student loans in default will be sent to collections next week. Here's what to know
The Trump administration will end the last piece of pandemic-era student loan relief and send defaulted student loans to collections starting May 5. This comes after President Donald Trump paused student loan repayment due to the COVID-19 pandemic in March 2020. President Joe Biden went on to extend this relief, and student loan repayments didn't resume until October 2023. Even then, borrowers still weren't penalized for late payments until last fall. Now, the estimated 5 million people with federal student loans in default could see their wages garnished and their federal payments reduced as their loans are sent to collections. Here's what you need to know about your defaulted student loans: Defaulted student loans begin with delinquency, which happens when you miss a payment. After 90 days, this is reported to national credit bureaus, impacting your credit score. Your loans will go into default if you haven't made a payment in 270 days and haven't made an agreement with your borrower, such as deferment or forbearance. You can log into your federal student loan account to check the status of your loans. The Education Department will begin forced recollections on May 5. That means the agency can garnish portions of your wages to pay the loans without a court order. Your credit score could also suffer, impacting your ability to obtain new loans or rent an apartment. Officials could also withhold any tax refunds or other federal payments to put towards your loan payment. This could also mean withholding up to 15 percent of your monthly Social Security retirement and disability benefits. If your loans are in default, the Federal Student Aid office will reach out in the coming weeks with information about the Default Resolution Group. The office can help you navigate your defaulted student loans. One option is to pay your loans off in full right away — but that isn't feasible for most of the 5 million people in default. The two main options are rehabilitating your loans and consolidating your loans, according to the Federal Student Aid office. Rehabilitating your loan means that you agree in writing to make nine reasonable monthly payments, which are determined by the loan holder, within 20 days of the due date. You must also make all nine payments over 10 consecutive months. Depending on your income, your monthly payment under a rehabilitation plan could be as low as $5. Consolidating your loan allows you to pay off one or multiple federal student loans with a new consolidation loan. To consolidate, you can agree to repay the new loan under an income-driven repayment plan. Alternatively, you can make three consecutive, voluntary, on-time and full monthly payments on the defaulted loan before you consolidate it. You can learn more about reconciliation and consolidation from the Federal Student Aid office. Your loan may be eligible for deferment, which means you don't have to make payments. This also means you aren't making any progress toward repaying your loan. If you're enrolled in college or a career school at least half-time, your loans are automatically in deferment. However, there are various other reasons for deferment, including cancer treatment, economic hardship, graduate fellowship completion, military service, and unemployment. Learn more about deferment from the Federal Student Aid office.
The Independent
30-04-2025
- Business
- The Independent
Federal student loans in default will be sent to collections next week. Here's what to know
The Trump administration will end the last piece of pandemic-era student loan relief and send defaulted student loans to collections starting May 5. This comes after President Donald Trump paused student loan repayment due to the COVID-19 pandemic in March 2020. President Joe Biden went on to extend this relief, and student loan repayments didn't resume until October 2023. Even then, borrowers still weren't penalized for late payments until last fall. Now, the estimated 5 million people with federal student loans in default could see their wages garnished and their federal payments reduced as their loans are sent to collections. Here's what you need to know about your defaulted student loans: How do I know if my loans are in default? Defaulted student loans begin with delinquency, which happens when you miss a payment. After 90 days, this is reported to national credit bureaus, impacting your credit score. Your loans will go into default if you haven't made a payment in 270 days and haven't made an agreement with your borrower, such as deferment or forbearance. You can log into your federal student loan account to check the status of your loans. I have loans in default. What happens now? The Education Department will begin forced recollections on May 5. That means the agency can garnish portions of your wages to pay the loans without a court order. Your credit score could also suffer, impacting your ability to obtain new loans or rent an apartment. Officials could also withhold any tax refunds or other federal payments to put towards your loan payment. This could also mean withholding up to 15 percent of your monthly Social Security retirement and disability benefits. If your loans are in default, the Federal Student Aid office will reach out in the coming weeks with information about the Default Resolution Group. The office can help you navigate your defaulted student loans. How do I get out of default? One option is to pay your loans off in full right away — but that isn't feasible for most of the 5 million people in default. The two main options are rehabilitating your loans and consolidating your loans, according to the Federal Student Aid office. Rehabilitating your loan means that you agree in writing to make nine reasonable monthly payments, which are determined by the loan holder, within 20 days of the due date. You must also make all nine payments over 10 consecutive months. Depending on your income, your monthly payment under a rehabilitation plan could be as low as $5. Consolidating your loan allows you to pay off one or multiple federal student loans with a new consolidation loan. To consolidate, you can agree to repay the new loan under an income-driven repayment plan. Alternatively, you can make three consecutive, voluntary, on-time and full monthly payments on the defaulted loan before you consolidate it. You can learn more about reconciliation and consolidation from the Federal Student Aid office. What is loan deferment? Your loan may be eligible for deferment, which means you don't have to make payments. This also means you aren't making any progress toward repaying your loan. If you're enrolled in college or a career school at least half-time, your loans are automatically in deferment. However, there are various other reasons for deferment, including cancer treatment, economic hardship, graduate fellowship completion, military service, and unemployment.
