What's Happening?
The Trump administration is set to resume wage garnishment for student loan borrowers who are in default, starting with notices to around 1,000 borrowers this month. This move comes after the end of the pandemic-era interest-free forbearance period, which
had provided temporary relief to borrowers. The Department of Education will issue notices to borrowers who are 270 days past due on their payments, giving them a 30-day notice before garnishments begin. This policy change also coincides with the reclassification of student loan forgiveness under income-driven repayment plans as taxable income, potentially increasing costs for borrowers.
Why It's Important?
The resumption of wage garnishment marks a significant shift in the federal government's approach to handling student loan defaults, potentially impacting millions of borrowers. With 42.5 million people owing federal student loans, the financial burden on those in default could increase significantly. The reclassification of loan forgiveness as taxable income further complicates the financial landscape for borrowers, potentially leading to higher tax liabilities. This policy change could disproportionately affect low-income borrowers who rely on income-driven repayment plans for financial relief.
What's Next?
As the garnishment process begins, borrowers in default are advised to make payment arrangements or apply for assistance programs to avoid wage garnishment. The government may also pursue other collection methods, such as intercepting tax refunds or garnishing social security checks for retirees with defaulted loans. The broader implications of these changes may prompt discussions on student loan reform and the need for more comprehensive solutions to address the growing student debt crisis.
