Student loan wage garnishments on hold for now, U.S. Education Department says
Education Secretary Linda McMahon speaks with reporters in the James Brady Press Briefing Room at the White House in November. Credit: AP/Alex Brandon
The federal Department of Education said Friday it will delay involuntary collections on defaulted student loans while it overhauls its repayment programs, backing off previous plans to start garnishing the wages of borrowers and seizing tax refunds.
The agency is working on “major student loan repayment reforms,” including a new income-driven repayment plan that will be available July 1, the department said in a statement.
“These reforms, which include simplifying repayment options and providing an additional opportunity for borrowers to rehabilitate their federal student loans, reflect the Trump Administration’s commitment to provide better support for current and future borrowers in repayment,” the agency said.
More than 42 million borrowers owe more than $1.6 trillion in student debt, the Department of Education said last year. Last month, the agency said that beginning the week of Jan. 7, it would start sending notices to borrowers in default that their wages would be garnished. This came after a yearslong break from collections that started during the pandemic.
Borrowers are considered in default if they have not made a payment in more than 270 days. The Department of Education had also said it would start seizing federal payments, such as tax refunds, from defaulted borrowers.
Nicholas Kent, the agency’s head of higher education, said in a statement Friday that the administration is “committed to helping student and parent borrowers resume regular, on-time repayment, with more clear and affordable options.”
The delay is a boon for borrowers who have fallen behind on their payments, said Susan Quigley, a financial planner based in Garden City. But many debtors who have not been making payments remain uncertain about what their eventual monthly student loan payments could be under the repayment reforms, she said.
“I've had some clients that were very stressed about this,” especially since some of them might also be facing higher health care premiums, Quigley said.
There has been a “black hole of information” about how much people will need to pay each month for student debt and health care premiums, which makes it difficult to plan for major purchases such as a house or car, she said.
With the delay in collections, Quigley said, “I think they're going to be relieved, but I think they're also still confused, because it's still making it difficult to budget and plan."
Borrowers should call the Treasury Department at 800-304-3107 to find out whether their student loans are in default and at risk of eventually going to collections once the delay ends, said Winston Berkman-Breen, legal director at the nonprofit group Protect Borrowers.
The delay is “certainly a good thing for borrowers,” he said. But, Berkman-Breen added, “The fact that this is a postponement, not a permanent change, just means they're going to have to stay vigilant, continue to watch out for updates, and at some point they might still have their wages garnished.”
Maura McDermott covers education. Since joining Newsday in 2012, she also has worked on the investigations team and covered real estate and the business of health care.
