Some of the most vulnerable student loan borrowers received the promise of a lifeline back in March when the Education Department announced it was stopping collection actions on defaulted student loans.
But three weeks later, many borrowers are reporting that their wages are still being garnished to pay off those debts. Others have said they wanted to know how long it would take for the government to issue an estimated $1.8 billion in repayments for tax refunds that were appropriated to pay down defaulted student loans.
The move by the Education Department was meant to help borrowers weather the economic havoc caused by the coronavirus. And the CARES Act, the federal government’s $2.3 trillion coronavirus relief package, later put into law the order to stop collections, wage garnishments, and tax refund offsets from defaulted loans.
Yet it’s unclear how long it will take for all the affected borrowers to see the results. In the meantime, some are struggling to pay their bills. One borrower who emailed Money said her entire $6,000 tax refund was seized as payment for her defaulted student loans. She’s a single mother with three children.
There are about 9 million people with federal student loans who have not made a payment in at least nine months. That places them in default, and the federal government has considerable power to collect money once your loans are in default.
The government can take what you owe out of your tax refund or Social Security income, in what’s called a Treasury offset. It can also take the money from your paychecks. Borrowers in that position typically see 15% of their wages garnished, says Adam Minsky, a Boston-based lawyer who specializes in student loan issues.
Nearly half of borrowers in default never completed their academic program, according to research from The Institute for College Access & Success. People with defaulted loans are also more likely to be first-generation college students or Black borrowers. About 45% attended a for-profit college.
The Education Department previously said that more than 830,000 people with defaulted loans are due refunds from tax offsets. The $1.8 billion in Treasury offsets the government is giving back only represents refunds that were in the process of being withheld on or after March 13, the date of the national emergency declaration.
But a group of Democratic legislators have pushed for extending the qualifying period to cover all of the 2020 tax filing season. Lower-income people tend to file income tax returns early because they rely on refunds, the lawmakers wrote in a letter. Last year, according to the letter, about $3.2 billion was withheld through Treasury offsets from federal tax refunds that contained refundable credits, like the Earned Income Tax Credit, aimed at low- and middle-income Americans.
Betsy Mayotte, founder of The Institute of Student Loan Advisors, says the timeline for getting refunds for Treasury offsets will depend on which agency or company collected the money. In general, a good rule of thumb is six weeks, she says.
The Student Borrower Protection Center (SBPC), meanwhile, is collecting information from borrowers who are dealing with wage garnishment. In the past few weeks, the center has heard from dozens of borrowers who were still having their paychecks reduced after the CARES Act went into effect. Some said they've received conflicting, confusing information about how to get the garnishment to stop.
When Seth Frotman, executive director of the SBPC, was the Student Loan Ombudsman at the Consumer Financial Protection Bureau, he heard many complaints from borrowers trying to turn off erroneous wage garnishments. It’s a complex system for individual borrows to navigate.
Last year, Education Secretary Betsy DeVos was fined by a judge after the Education Department's loan servicers continued to bill borrowers who were granted forgiveness after being defrauded by a now-closed for-profit college. About 1,800 of those borrowers had their wages or tax refunds garnished. The department said in court filings that employers who did not follow its instructions to stop were "out of its control."
“(The government) can’t just shut off the system,” Frotman says. “Despite the law saying stop, they’ve built this out-of-control debt machine.”
It's unclear how many borrowers the government was garnishing wages from when the law went into effect in March. A group of Democratic members of Congress sent a letter Thursday to DeVos asking that and other questions about the progress of refunds.
The Education Department did not respond to Money's question about how long it will take to get borrowers refunds. So far, the department has contacted the employers for more than 135,000 borrowers with defaulted federal loans held by the government to tell them to stop the garnishments, according to a department spokesperson. The loan servicer that handles defaulted student loans will begin sending letters to employers it hasn't been able to contact this week.
Some borrowers have found the answers they were looking for—eventually. A few weeks ago, Shawn Scott, a software engineer for a healthcare company in Fort Worth, Texas, contacted ADP, which runs his employer's payroll. ADP told him it couldn't do anything until it heard from his loan servicer. He then called the collections agency that handles his debt, and a representative there said it couldn't act until it heard from the Education Department.
As he was talking with customer service representatives, he had to keep explaining that this was the law now.
"I don't know that they're telling their reps how to handle the situation," he says. "It just seemed like nobody really knew what to do."
But on his next paycheck, the garnishment had been stopped, which gives him an extra $600 or so when he's paid every two weeks. He also got a letter saying he could expect a refund from the previous check's garnishment in up to 60 days.
Other borrowers also received word from the Education Department's Default Resolution Group last week. Two emails sent to borrowers who are due refunds, which Money reviewed, said they should see payments from their withheld tax refunds, Social Security income, or paychecks within 30 to 60 days. The refunds will be mailed, and borrowers will receive one refund check for each payment the government seized from your tax refund or wages, according to the email.
What Borrowers Can Do If Your Wages Are Still Being Garnished or You’re Due a Refund
Borrowers don't have a lot of options beyond being an informed advocate for themselves. Here's what you can do.
Know Your Rights: The law is on your side now. If you are currently having your wages garnished, that's illegal, and it should be stopped.
Talk to Your Employer: The Education Department has said it would rely on employers to make the changes to borrowers' paychecks and has advised borrowers to contact their human resources department.
It's possible your company will tell you it can't do anything until it receives instructions from the Education Department, Mayotte says. But you can still tell your employer to be on the look out for a notice from the government; send your employer this and this from the Education Department, and be persistent.
And keep in mind that you may not be the only individual at your company who's affected. By pushing the issue with your employer, you could be helping other employees at your company, too, Frotman says.
Contact the Education Department: If you think you should be getting a refund, but you haven't heard from the Education Department yet, you can call the department's Default Resolution Group at 1-800-621-3115. If you have questions about the status of your refund, like checking which address a refund check will be mail to, you should also use that number.
Complain (Yes, Really): If you're still having your wages garnished, Frotman recommends filing complaints against the private debt collector handling your case. You can contact the CFPB (file a complaint here) and your state's attorney general (find contact info for your state here).