The U.S. Department of Education will begin collecting on defaulted student loans, starting with garnished wages.
The Trump Administration announced April 21 that it plans to use the Treasury Offset Program to manage the collections. The program deducts the money needed to satisfy debts from federal and state payments, such as tax refunds and Social Security benefits. According to Politico, the news expects to impact around 5.6 million student loan borrowers in default.
The process will begin on May 5, with the actual wage garnishment to commence in the coming weeks, following the required 30-day notice to borrowers. According to the Bureau of Fiscal Service, TOP works with public agencies by matching any debts in its database to a person’s upcoming federal or state payments. If found that they have an outstanding debt, TOP removes the money from the individual’s expected payout before they receive it.
Typically, those who do not make payments for more than 270 days will have their loans go into default. Around four million borrowers have already fallen into late-stage delinquency, a term referring to those who are 91 to 180 days past due on payments.
However, a federal pause on student loan collections enacted at the start of the COVID-19 pandemic has left more borrowers than usual in default status. Since March 2020, no federal student loans have been moved to debt collections.
“The result has been that the federal government student loan portfolio has continued to grow, and we’ve got a record number of borrowers that are at risk of or in delinquency and default,” a senior department official told reporters Monday, as detailed by Fox News.
Now, Education Department officials aim to help borrowers get back on track with repaying their student loans. The official also asserted that only 4 out of 10 borrowers have stayed up-to-date with their loan payments.
For the millions of borrowers considered defaulters, the Education Department will encourage them to participate in student loan repayment programs, such as the income-driven repayment (IDR) plan or loan rehabilitation. The Department recently reopened access to IDR plan applications ahead of the news as well.
Soon, these borrowers will also receive a host of emails informing them about TOP’s wage garnishment. Moreover, the department hopes to collaborate with Congress on developing new strategies to reduce this level of loan delinquency.
“Going forward, we totally believe that Congress has a role to play in fixing the higher education system that puts students in a position where they can afford their loan payments,” added the department official. “So we’re looking forward to working with Congress on their efforts to streamline loan repayment as well as lowering college costs. And you’ll hear a lot about this over the next few weeks.”
RELATED CONTENT: New Smartphone Scam Targets Bank Accounts Via NFC
