The U.S. Department of Education is restarting collections on federal student loans, including wage garnishments, as early as May 5. This decision comes after a five-year pause in collection activity, with the Biden administration focusing on providing relief to struggling borrowers during the Covid pandemic. There are over 42 million Americans with outstanding federal education debt totaling more than $1.6 trillion, with an estimated 10 million borrowers in default. The government can garnish federal tax refunds, wages, and Social Security benefits to collect on defaulted loans.
Social Security recipients could have up to 15% of their benefits reduced, but must be left with at least $750 a month. Retirees could face financial hardship if their benefits are garnished to repay student loans. Borrowers in default will receive notifications and can take steps to avoid garnishments by enrolling in income-driven repayment plans or pursuing loan rehabilitation. Borrowers can also request deferments or forbearance to temporarily pause payments.
If facing garnishments, borrowers will receive notice and have the option to request a hearing before an administrative law judge. There are options to challenge garnishments if they will result in financial hardship. Borrowers can contact the Education Department to dispute offsets to Social Security benefits. Overall, it is important for borrowers to take proactive steps to avoid collection activity and seek assistance from the Default Resolution Group to get current on their loans.
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