What's Happening?
Federal student loan borrowers who have defaulted on their loans are facing the resumption of wage garnishment by the Department of Education. This action follows the end of a pause initiated in 2020 due to the Covid-19 pandemic. Approximately 1,000 borrowers were
notified of impending wage garnishments, with more expected to receive similar notifications. The federal government can seize up to 15% of a borrower's disposable income if they default on their loans, defined as being at least 270 days late on a payment. Borrowers are advised to negotiate repayment plans or enter loan rehabilitation to avoid garnishment. The Department of Education has resumed the Treasury Offset program, which allows the seizure of federal payments from defaulted borrowers.
Why It's Important?
The resumption of wage garnishment for defaulted student loans highlights the financial challenges faced by borrowers, particularly those struggling with other financial commitments. This move could exacerbate financial instability for many, as more than 40% of borrowers report having to choose between loan payments and basic needs. The garnishment of wages and federal payments can significantly impact borrowers' financial health, potentially leading to increased financial hardship. The situation underscores the ongoing debate over student loan forgiveness and the need for comprehensive solutions to address the student debt crisis in the U.S.
What's Next?
Borrowers facing wage garnishment are encouraged to act quickly by negotiating repayment plans or entering loan rehabilitation. The Department of Education provides a 30-day notice before garnishment begins, offering a window for borrowers to take action. Legal avenues, such as requesting a hearing to object to garnishment, are also available. The broader implications of this policy may prompt further discussions on student loan reform and the potential for legislative changes to address the challenges faced by borrowers.
