KEY TAKEAWAYS
- The Department of Education is resuming collections on defaulted student loans, starting by garnishing federal payments like tax returns.
- The garnishment is a part of a government program that allows the Treasury Department to withhold portions of other federal payments, such as Social Security benefits.
- Later in the summer, up to 15% of defaulted borrowers’ wages will be garnished if they do not get their loan back into good standing.
As the Department of Education resumes collecting defaulted federal student loans, its first step is garnishing borrowers’ incoming tax refunds.
After almost five years of paused federal student loan payments, the DOE and the Department of the Treasury are beginning to garnish earnings from an estimated five million defaulted borrowers. Education Department Secretary Linda McMahon said this week that the Treasury is in the process of withholding tax refunds from defaulted borrowers.
Garnishing defaulted borrowers’ refunds is part of the Treasury Offset Program, in which the department can withhold up to 100% of federal tax refunds, 25% of federal retirement benefits, and 15% of federal wages, such as Social Security benefits. The withheld payments go toward borrowers’ missed payments.
The department has already sent initial communications notifying borrowers they are in default and offering them ways to avoid administrative wage garnishments, Forbes reported. If borrowers do not take action to bring themselves back into good standing, the department said borrowers could see up to 15% of their paychecks withheld later this summer.
Borrowers will receive a written notice from the Treasury to their last known address at least a month before the federal government withholds benefits or pay. The borrower has that time to pay the debt, enter into a payment agreement, or dispute the garnishment.
When borrowers took out their loans they agreed that updating their most recent address with the DOE is the borrower’s responsibility. That means that any notice sent, even if the borrower does not receive it, will be effective.
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