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Many Americans could soon be bringing home lighter paychecks as the result of a Trump administration policy that officially went into effect this week.
As of Monday, the U.S. Department of Education is resuming its efforts to recollect on defaulted federal student loans, reviving a practice that has been paused since the early days of the COVID-19 pandemic. In a press release, the department said that about 195,000 borrowers will receive a 30-day notice this week from the Treasury Department notifying them that their federal benefits could soon be subject to garnishment. The seizures would happen through the Treasury Offset Program, which withholds federal payments like Social Security payments, federal salaries, certain retirement benefits, and tax refunds to cover the debt.
By summer, the Department of Education says all 5.3 million borrowers who have defaulted on their loans will have been notified that they could be subject to “administrative wage garnishment,” which would also allow non-federal employers to withhold a percentage of income from an employee to pay an outstanding debt. Borrowers are being advised to reach out to the Default Resolution Group for additional options including signing up for an income-driven repayment plan, signing up for loan rehabilitation, and making a monthly payment.
The department first announced its plans to resume debt collection in April, accusing the Biden administration of keeping the collections pause in place despite loan repayment resuming in October 2023. “American taxpayers will no longer be forced to serve as collateral for irresponsible student-loan policies,” Education secretary Linda McMahon said in a statement last month.
Most federal student loans are considered to be in default if a borrower hasn’t made a payment in more than 270 days, a status that gets reported to credit bureaus and can impact future loan eligibility. According to the Department of Education, 4 million borrowers are in what’s considered “late-stage delinquency,” in which they haven’t made a payment on their loans for a period of between 91 to 180 days.
