UNITED STATES – MAY 21: Education Secretary Linda McMahon testifies during the House Appropriations … More
Hundreds of thousands of federal student loan borrowers who were facing potentially imminent seizure of their Social Security benefits got some good news this week after the Department of Education announced a halt to the new collections threats.
“The Trump Administration is committed to protecting social security recipients who oftentimes rely on a fixed income,” said a Department of Education spokesperson on Monday. The department has “put a pause on any future social security offsets.”
But federal student loan borrowers aren’t out of the woods. The pause may be only temporary, and the reprieve only pertains to Social Security recipients. The department is continuing to ramp up efforts to forcibly collect from defaulted borrowers through other methods. Here’s the latest.
5.3 Million Defaulted Federal Student Loan Borrowers Face Imminent Offset And Garnishment
In April, the Trump administration announced that it would be restarting collections efforts against defaulted federal student loan borrowers after a five-year pause related to pandemic-era relief programs. The administration characterized the efforts as necessary to recoup costs for taxpayers.
“The Department has not collected on defaulted loans since March 2020,” said the Department of Education in the announcement. “Resuming collections protects taxpayers from shouldering the cost of federal student loans that borrowers willingly undertook to finance their postsecondary education.”
“Hundreds of billions have already been transferred to taxpayers” through Biden administration relief programs, argued Secretary of Education Linda McMahon in the statement. “Going forward, the Department of Education, in conjunction with the Department of Treasury, will shepherd the student loan program responsibly and according to the law.”
The federal government has vast powers to forcibly seize income and benefits from Americans who are in default on their federal student loans, which typically is defined as being more than nine months past due. Without needing to file a lawsuit or step foot in a courtroom, the Department of Education and the Department of Treasury can seize wages, offset a portion of federal benefits (including Social Security), and intercept federal tax refunds.
Student loan borrower advocacy organizations have warned that restarting collections efforts against defaulted federal student loan borrowers could be disastrous, particularly given the significant dysfunction currently plaguing the federal student loan system. This includes massive application backlogs for affordable student loan repayment plans, and lengthy call hold times for borrowers trying to reach their loan servicer.
“Borrowers report facing extraordinarily long wait times when they reach out to their servicers, with some spending eight-plus hours on hold waiting to speak to customer support,” said The Institute For College Access and Success in a blog post in April. “Borrowers have fewer resources than ever to navigate their repayment options, and those options are ever shifting. For many borrowers, this is likely to mean default. For those already in default, getting back on track is likely to be even more difficult than ever.”
Department Of Education Announces Temporary Reprieve For Defaulted Student Loan Borrowers Receiving Social Security Benefits
The Trump administration had faced criticism from some advocacy groups for taking steps to offset the Social Security benefits of defaulted federal student loan borrowers. At least 450,000 Americans are over age 62, are in default on their federal loans, and may be on fixed income via Social Security benefits, according to the Consumer Financial Protection Bureau. The Treasury Offset program, which allows the government to offset federal benefits, would lead to a loss of up to 15% of a borrower’s monthly benefit amount – potentially catastrophic for older borrowers who are living paycheck to paycheck.
On May 5, the Department of Education plowed ahead with implementation of Treasury Offset. Nearly 200,000 defaulted federal student loan borrowers received initial notices threatening to garnish their wages and benefits, with an additional five million borrowers expected to receive warnings by the end of the month.
But on Monday, the Department of Education seemingly reversed course, at least for Social Security recipients, and announced that there would be a “pause” on Social Security benefits offsets as part of the broader defaulted federal student loan collections efforts.
“The Trump Administration is committed to protecting social security recipients who oftentimes rely on a fixed income,” said the department spokesperson. “In the coming weeks, the Department will begin proactive outreach to recipients about affordable loan repayment options and help them back into good standing.”
The department provided no other formal explanation for the decision to pause Social Security offset.
Defaulted Student Loan Borrowers Are Not Out Of The Woods
While the announcement may be welcome news for the nearly half a million federal student loan borrowers who receive Social Security benefits, borrowers are not out of the woods.
First, it’s important to note that the Department of Education characterized its action as a “pause,” not a permanent suspension. This suggests that the department may resume Social Security offset at a later date, perhaps after the forthcoming “proactive outreach” efforts the department announced will begin in the coming weeks.
In addition, the department only announced a pause on Social Security offset. The pause does not appear to encompass the entire Treasury Offset program, which allows the government to also garnish up to 15% of federal employee wages, up to 100% of federal vendor and contractor payments, and up to 100% of federal tax refunds issued to defaulted student loan borrowers. The pause also does not appear to include the administrative wage garnishment program, which allows the government to order private and non-federal employers to garnish up to 15% of a defaulted federal student loan borrower’s paycheck.
“For five million people in default, federal law gives borrowers a way out of default and the right to make loan payments they can afford,” said Student Borrower Protection Center Executive Director Mike Pierce in a statement in April. “Since February, Donald Trump and Linda McMahon have blocked these borrowers’ path out of default and are now feeding them into the maw of the government debt collection machine. This is cruel, unnecessary, and will further fan the flames of economic chaos for working families across this country.”
Administrative wage garnishment efforts against defaulted federal student loan borrowers are expected to begin sometime this summer. By the end of the year, the Department of Education estimates that nearly 10 million borrowers may end up in default, as millions have already begun falling behind on their monthly payments.