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Forbes
3 days ago
- Business
- Forbes
Surprise Student Loan Reprieve For 450,000 Borrowers Announced By Department Of Education
UNITED STATES - MAY 21: Education Secretary Linda McMahon testifies during the House Appropriations ... More Subcommittee on Labor, Health and Human Services, Education, and Related Agencies hearing on the Department of Education's budget on Wednesday, May 21, 2025. The Department announced a "pause" on certain student loan collections efforts for Social Security benefits recipients on June 2, 2025. (Tom Williams/CQ-Roll Call, Inc via Getty Images) 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. 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.' 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. 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.
Politico
21-05-2025
- Health
- Politico
B-B-B-Bennies and regrets
When I first heard the term 'death spiral,' I figured it was the name of a new ride at Great Adventure. Turns out it's even more fun. It's what's happening to the New Jersey State Health Benefits Program for local government employees, and probably soon for educators as well. The Department of Treasury on Tuesday released a dead serious report about the problems plaguing the plans, which have faced huge premium increases over the last couple years and, according to the Murphy administration, are due for more without major structural reforms. The report led to finger-pointing as to who's the blame. The administration points to one big cause as the rich benefits offered, including paying for expensive hormonal weight loss drugs like Ozempic. And they say the governing bodies for the plans, split between management and labor, often deadlock. Public sector unions like the CWA and PBA call this 'scapegoating' their members, blaming 'greed' and healthcare cost, along with the administration's 'refusal to address the real drivers of increasing costs and long-term instability: profit-driven healthcare.' But nobody disputes the benefits plans are in deep crisis. Here's the death spiral part: Because rates are rising so fast, some local governments with comparatively healthy work forces can find cheaper rates in the private sector. The governments with less healthy work forces stay in, which further increases the rates. Just a few days before this report came out, Assemblymember Carmen Theresa Morales introduced legislation that would, starting in October 2026, require local governments that enroll in the local government-and-educators portions of the program to stay in at least five years. That's not a coincidence. And I doubt it's the last piece of legislation we'll see on this. FEEDBACK? Reach me at mfriedman@ WHERE'S MURPHY — No public schedule QUOTE OF THE DAY: 'I have passionate differences and disagreements with Charlie Kushner, but I supported his confirmation because he has been unrelenting in reforming our criminal justice system and has substantively helped achieve the liberation of thousands of people from unjust incarceration.' — Sen. Cory Booker, the only Democrat to vote in favor of Kushner's confirmation as ambassador to France. HAPPY BIRTHDAY — Sean Kean, Alaine Williams, Mollie Binotto, Brigid Harrison, Joshua Henne, Michael Gartland, Melissa Pollitt WHAT TRENTON MADE THE REPUBLICAN DEBATE — Republican gubernatorial candidates Jack Ciattarelli, Bill Spadea and Jon Bramnick disagreed on plenty during last night's 2.5 hour debate — much more than I can get into here. But here's one thing they agreed on:: The federal assault charges against Democratic U.S. Rep. LaMonica McIver. 'If you touch a police officer, that's aggravated assault,' Bramnick said. 'You cannot obstruct. So if the video shows a congressperson or anybody else is obstructing the arrest of an individual, that's what the law is. … I just think in this environment she's got a little bit of a problem.' Spadea said: 'I would hope that a member of Congress would have more sense than to hit a police officer. I hope she is charged to the fullest extent of the law and serves whatever punishment is appropriate.' And Ciattarelli: 'Video shows that this person who you mention laid her hands on another person. So that to me says that the charges are legitimate.' (McIver is shown shoving and elbowing into officers on videos, and being shoved by one, but none show her hitting them). Where they differed on this was whether Newark Mayor Ras Baraka, whose arrest touched off the whole scuffle, should have been arrested in the first place. Habba dropped the charge against Baraka on Monday, which Bramnick said 'maybe those allegations weren't so strong.' Spadea, by contrast, said 'it's too bad' she dropped the charge against him. I thought President Trump's endorsement of Jack Ciattarelli would have played a bigger role in last night's two and a half hour presidential debate, but other than the opening statements — in which non-endorsed Bill Spadea actually brought it up first — it didn't feature heavily. 'Let me be very clear: the president endorsed a poll — a poll that was conducted and paid for by Jack's campaign,' Spadea said. Ciattarelli shot back that Trump endorsed him for a many reasons, including his electability and fundraising. 'He endorsed me because i'm the only person who can beat the Democrats in November, and the goal is to win,' he said. Bramnick, known as one of the few Republican New Jersey lawmakers who's critical of the president, just joked about it. 'I did not get the endorsement from Donald Trump. I waited up late at night. No phone call.' Bramnick, who moonlights as a stand-up comedian, had a lot of punch lines that landed. This was was my favorite, in response to a question about the Trump administration's $5,000 'baby bonus': 'I think people are good with having babies without having a bonus. They know how to do it.' —'NJ Transit strike halted but financial questions remain' —'As NJ Transit trains start to roll again on May 20, here's how talks played out' —'For the first time, group homes in N.J. would face fines for harming disabled residents' —'N.J. man arrested in Florida for alleged death threats against Gov. Phil Murphy' —"What NJ transit wage deal with union means for coming fare increase' —"NJ Transit extends ticket expiration dates after strike by engineers' TRUMP ERA HABBA: MAMMA MIA, HERE SHE GOES AGAIN — Alina Habba targeted Democrats when she became New Jersey's top prosecutor. Now she's following through, by POLITICO's Matt Friedman, Erica Orden and Ry Rivard: From the moment she was named New Jersey's interim U.S. Attorney, Alina Habba made it clear she would use the office as a political bludgeon … Habba talked to a far-right activist about turning 'New Jersey red,' announced investigations into its Democratic governor and attorney general over immigration, called out Sen. Cory Booker's hometown of Newark for crime and said 'I'm looking at you, Paterson' over the city's immigration policies. Habba, who had no prosecutorial experience but represented President Donald Trump in three civil trials in recent years, found an opening this month to make her mark, when three Democratic House members and a progressive mayor running for governor showed up to inspect a migrant detention center in Newark. … It wouldn't be the first time New Jersey's U.S. Attorney's Office has been tainted by politics. … 'Chris Christie used that office brilliantly for his own political purposes, but he didn't come at it with a meat cleaver the way she's approaching it,' said Gerry Krovatin, a prominent New Jersey defense lawyer and Democrat who has often represented clients prosecuted by the New Jersey U.S. attorney's office. — 'New Jersey Rep. LaMonica McIver faces felony assault charge in conflict at ICE facility, court filing shows" — 'DOJ sends a warning to judges and lawmakers who stoke Trump's wrath on immigration' —'Congressional hearing on ICE upended by charges against a House Democrat' —'I'm looking forward to my day in court': McIver claps back at Trump's charges —Snowflack: 'McIver case reveals the injustice of Trump's Dept. of 'Justice'' SALT — Blue-state Republicans, GOP leaders land tentative deal for $40,000 SALT deduction by POLITICO's Meredith Lee Hill and Benjamin Guggenheim: House Speaker Mike Johnson and a group of blue-state Republicans have reached a critical but tentative deal to boost the cap on state and local tax deductions to $40,000 in the GOP megabill, according to three Republicans with direct knowledge of the private agreement. The new deduction cap, which would be per household, will be limited to taxpayers making below $500,000. Under the tentative deal, the income cap and the deduction will grow 1 percent every year over a ten-year window. The deduction stays in place after the 10-year window and doesn't snap back to previous levels. President Donald Trump is expected to endorse the SALT agreement. However, GOP hard-liners and fiscal hawks who deeply oppose a higher SALT cap boost still need to sign off on the measure. FLYING BLIND — 'Newark's air traffic nightmare continues as controllers lose contact with planes a 4th time,' by NJ Advance Media's Ted Sherman: Federal Aviation Administration officials are investigating yet another outage at the air traffic control center handling flights to and from Newark Liberty International Airport — the fourth such incident reported in the past three weeks. This one was brief, lasting only seconds, and did not interfere with operations, according to the FAA. The outage affected Philadelphia Terminal Radar Approach Control center, known as TRACON, which manages air traffic control in the airspace surrounding Newark Liberty. The facility has come under mounting scrutiny since a total radar and radio frequency blackout on April 28.' MEDICUTS — 'What GOP's Medicaid cuts could cost NJ,' by NJ Spotlight News' Lilo H. Stainton: 'New Jersey stands to lose $3.6 billion — nearly a quarter of the federal funding it expected to collect — for its Medicaid program in the new budget year under legislation now advancing in Congress, according to an analysis by state officials. A Republican proposal, consisting of 11 smaller bills bundled together into an immense 1,116-page bill over the weekend, would cut as much as $300 million in hospital aid, impose work requirements on thousands of low-income adults and eliminate coverage for at least 360,000 residents, state analyses of the bills show.' ANY WAY THE WIND BLOWS — 'Not dead yet? Trump reversal on NY/NJ wind farm stuns opponents of offshore wind power,' by The Press of Atlantic City's Wayne Parry: 'In a rare about-face, President Donald Trump has reversed his opposition to an offshore wind farm being built off New York and New Jersey, allowing it to proceed after New York Gov. Kathy Hochul promised to work with his administration on 'new energy projects.' Hochul and Equinor, the Norwegian energy company building the project off Long Branch in New Jersey and Long Beach on Long Island, said Monday night the U.S. Interior Department has lifted a stop-work order it imposed on the Empire Wind I project nearly a month ago. … The Ocean City-based Protect Our Coast NJ group called Trump's reversal 'shocking.' 'We were stunned to see this news,' said its president, Robin Shaffer. 'We believe that offshore wind anywhere is a terrible idea.' —'How would Medicaid cuts hit disabled community in NJ? Mom frets as GOP offers assurances' LOCAL R.I.P. — 'Longtime Fair Lawn mayor and Bergen County freeholder David Ganz dies,' by The Record's Amanda Wallace: 'David L. Ganz, former Fair Lawn mayor and a longtime member of the Bergen County Board of Chosen Freeholders, has died, the borough announced May 20. His death was announced by the borough in a post on Facebook on May 20, which described Ganz as a 'devoted public servant, community leader, and esteemed resident whose legacy has left a lasting imprint on Fair Lawn and beyond.'' WAIT 'TILL WE GET OUR HAYNES OFF YOU — 'Newark school board member involved in Global Studies cases steps down from her role,' by Chalkbeat's Jessie Gómez: 'One of Newark's longest-serving school board members, who faced removal from her seat this year and has spoken out about racial harassment and tensions at a controversial district high school, has suddenly left the board, Chalkbeat has learned. Dawn Haynes, who was serving her third term, has stepped down from the Newark Board of Education effective immediately, according to multiple sources. First elected in 2018, Haynes recently faced criticism from Newark Public Schools Superintendent Roger León and other district leaders after her daughter filed a legal claim against the district alleging religious, racial, and gender discrimination and other harassment during her time as a Newark School of Global Studies student. In November 2024, the Newark school board voted to ask the state education department to recommend the removal of Haynes due to a conflict that stemmed from her daughter's legal claim, but the petition was shot down in January by the state's education commissioner.' DID CARMELA TAKE IT FROM THE BIRD FEEDER? — 'Cliffside Park reported $38,000 in cash tax payments missing from borough hall,' by The Record's Kristie Cattafi: 'The borough has reported that over $38,000 in property taxes paid in cash by property owners to the tax office last year is missing. The missing funds, which were reported stolen to the borough police, represent second-quarter tax bill payments. The borough has no answers yet about what happened to the cash payments, but it recently recouped the losses through an insurance claim. As a result, the borough will no longer accept cash property tax payments, said borough spokesperson Bill Maer.' COALITION FOR REGRESS — 'HCDO calls on Fulop-linked PAC, candidates, to denounce 'racist' mailer in LD-31,' by Hudson County View's John Heinis: 'The Hudson County Democratic Organization (HCDO) is calling on a super PAC linked to Mayor Steven Fulop's gubernatorial run, as well as some of his down ballot candidates, to denounce a 'racist' mailer related to the 31st Legislative District Assembly race. … The mailer in question is from the Coalition of Progress PAC, Fulop's main backer in gubernatorial race that has also shown support for Schillari and the Jersey City mayor's Assembly candidates. … 'Billionaire Paul Fireman gave Jerry Walker hundreds of thousands of dollars to help turn Liberty State Park into a private golf course,' the campaign piece that hit mailboxes early this month says. … The photo of Walker, running with the HCDO's support in LD-31, was taken from a Hudson County Board of Commissioners meeting and is wearing a silver watch. The original photo, where both of his arms are mostly obscured, appeared in The Jersey Journal last year.' —'How Jersey Shore towns will respond to gangs of teens this Memorial Day weekend' —'Congresswoman Ilhan Omar supporting Mussab Ali for Jersey City mayor' —'So close, yet so far: how Barringer and Technology high schools diverge' —'Morristown police officer accused of driving drunk and crashing car while off-duty' —"Judge denies Hector & Alonso's request for waterfront voting sites in LD-33' EVERYTHING ELSE BORN ON THE PAYOU — 'New Rutgers president will earn $1M+. Inside his record-breaking contract,' by NJ Advance Media's Liz Rosenberg: 'Louisiana State University President William Tate IV will get a big raise when he takes over as Rutgers University's new president this summer. Tate was earning a base pay of $750,000 a year, plus the ability to boost his pay with bonuses, under a three-year contract extension he signed at Louisiana State in 2024. At Rutgers, he will earn a base salary of $1.1 million, plus significantly more in incentive pay and several other perks, according to the terms of his contract. That will make him Rutgers' highest paid president ever.' IT'S HO SCALE — 'A comedian saves a railroad with purchase of a New Jersey home,' by The Wall Street Journal's Betsy McKay: 'A model railroad club is back on track after a television comedian and his wife bought the suburban home where it is headquartered and invited the train buffs to stay. James 'Murr' Murray, a star of truTV's 'Impractical Jokers' and his wife, Melyssa Murray, bought the Rocky Hill, N.J., home where the Pacific Southern Railway operates its trains on a vast layout of miniature cities, mountains and railroad yards in the basement. The Murrays, who live a few minutes away in Princeton, had never heard of Pacific Southern, but learned about it after The Wall Street Journal published an article about the club and its possible derailment. … Far from putting the brakes on the model trains, they're signaling big plans. Murr calls himself a 'massive train buff.' 'You just don't find that in America anymore, that kind of dedication to a club and craft and the imagination and sweat and time has been put into it,' he said.' —'OceanFirst Bank improves to 'outstanding' grade from feds after $14M redlining fine' —'Japanese drugmaker lays off 57 from U.S. headquarters in New Jersey' —'I-80 eastbound lanes to reopen Wednesday in Wharton; two westbound lanes set to reopen next week' —'Person may have spread measles at Shakira concert in MetLife Stadium, health officials say' —'Moody's Ratings upgrades NJCU's financial outlook from stable to positive'
Los Angeles Times
07-05-2025
- Business
- Los Angeles Times
Federal student loan collections restart. Here's what you need to know
For the first time in five years, starting this week, the federal government is resuming collections on federal student loans that are in default, an accelerated process that allows financial institutions to begin collecting funds from a borrower's wages, tax refunds or Social Security benefits. '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, which means helping borrowers return to repayment — both for the sake of their own financial health and our nation's economic outlook,' Education Secretary Linda McMahon, said in a statement. The collections of federal student loans were paused during President Trump's first term as a temporary relief measure in response to the COVID-19 pandemic. The Biden administration extended that pause several times until payments were resumed in October 2023, but repayment rules were relaxed and borrowers had a 12-month grace period without being penalized until last fall. Toward the end of 2024, some Biden-era income-driven repayment plans, including Saving on a Valuable Education, remained in legal limbo or blocked from implementation because of a federal court ruling that left millions of borrowers awaiting a resolution. Now, more than 5 million borrowers are in default, including some who went into default before the pandemic. A borrower is in default if they haven't made a payment in 270 days. An estimated 4 million more borrowers are in late-stage delinquency, meaning a payment hasn't been made in more than 90 days, and are quickly headed toward default, according to the Department of Education. On Monday, the office of Federal Student Aid restarted the Treasury Offset Program, a debt collection tool that allows the government to collect income tax refunds and other federal payments to put toward paying off the loans. The government can also withhold recurring payments such as Social Security benefits starting in June. Over the next two weeks, all student loan borrowers in default will receive an email from the office notifying them about the Treasury Offset Program and their student loan status. This summer, the office will order the employers of borrowers to withhold a portion of the employee's income to pay off the loans. It is known as a notice of administrative wage garnishment. Borrowers in default should contact the Default Resolution Group for assistance in making a monthly payment, enrolling in an income-driven repayment plan, or signing up for loan rehabilitation. The wage garnishment will continue until students get the loans out of default. Borrowers can check the status of their loans, including outstanding loan balances and servicer information by logging on to their online Federal Student Aid account. The loan servicer is the company the office of Federal Student Aid assigns to handle the billing and other services of the loan. Specific loan servicer information can be found on the account dashboard under 'My Loan Servicers.' For more information about a borrower's loan servicer, students should call the Federal Student Aid Information Center at (800) 433-3243 and be prepared to provide personal information connected to the loan account. If a borrower is delinquent and in danger of heading toward default, loan servicers will send multiple notices via email, mail or phone call. The online Federal Student Aid account enables borrowers to ensure their contact information is up to date so that they don't miss a notification. There are three ways a borrower can get their loan out of default: Pay the loan in full. Rehabilitate the loan. Consolidate the loan. To rehabilitate a defaulted loan, a borrower must make nine on-time monthly payments in an amount that's typically based on their income. That is done in an arrangement with the company that manages their loan. What happens once the nine payments are made: The defaulted loan will no longer be in default. The record of the default on the rehabilitated loan will be removed from the borrower's credit history. What will show up on the credit history is the late payments that were reported by the loan holder before the loan went into default. Any offsets or wage garnishment launched on a borrower's loan will stop. Consolidating a defaulted loan allows a borrower to pay off one or more federal student loans with a new direct consolidation loan. The process is managed by the Department of Education's Default Resolution Group. Before paying off the debt through a consolidation loan, a borrower must either agree to repay the new direct consolidation loan under an income-driven repayment plan or make three consecutive on-time, voluntary full monthly payments on the defaulted loan. Borrowers should note that their accrued interest gets added to the principal balance of the consolidated loan. The borrower is responsible for future interest on a higher balance, which can lead to an overall higher monthly payment. If a loan servicer is collecting payments on a borrower's defaulted loan through wage garnishment, the borrower cannot consolidate the loan until the wage garnishment order has been lifted. What happens after consolidation: The record of default and the late payments before default will remain on a student's credit history. Late payments will remain in a student's history for seven years. The consolidated loan will be eligible for deferment, forbearance and loan forgiveness.
New York Post
06-05-2025
- Business
- New York Post
Trump administration restarts involuntary collections on student loan debt
The Department of Education resumed collections on defaulted federal student loans on Monday and reminded colleges and universities of their 'shared responsibility' to ensure taxpayers aren't on the hook for unpaid debts. Collections had been on pause since March 2020, as a result of the COVID-19 pandemic, and the restart is expected to impact roughly 5.3 million borrowers currently in default on their federal student loans. 'As we begin to help defaulted borrowers back into repayment, we must also fix a broken higher education finance system that has put upward pressure on tuition rates without ensuring that colleges and universities are delivering a high-value degree to students,' Education Secretary Linda McMahon said in a statement. Advertisement 'For too long, insufficient transparency and accountability structures have allowed US universities to saddle students with enormous debt loads without paying enough attention to whether their own graduates are truly prepared to succeed in the labor market,' she added. 3 McMahon said she plans to publish the names of the schools with the highest student loan default rates. Getty Images On Monday, approximately 195,000 defaulted student loan borrowers received a 30-day notice from the Department of Treasury, informing them that their federal benefits will be subjected to the Treasury Offset Program, which collects debts by garnishing federal and state payments, such as federal tax refunds. Advertisement Offsets will begin in early June, according to the Education Department, and later this summer, all 5.3 million defaulted borrowers will receive a notice from Treasury that their earnings will be subject to administrative wage garnishment. On the same day collections resumed, McMahon issued a 'Dear Colleague Letter' to institutions of higher education reminding them of their obligation to support student loan borrowers under the Higher Education Act of 1965. 3 The Trump administration will start garnishing the wages of borrowers in default later this summer. Getty Images 'Although borrowers have the primary responsibility for repaying their student loans, institutions play a key role in the Department's ongoing efforts to improve loan repayment outcomes, especially as the cost of college set solely by institutions has continued to skyrocket,' McMahon wrote. Advertisement The education secretary asked universities to 'refocus and expand' efforts at advising and counseling students on borrowing money from the federal government and to provide 'clear and accurate information about repayment to borrowers through entrance and exit counseling.' McMahon noted that under the Higher Education Act, schools are required to keep default rates 'low' and warned that schools could 'lose eligibility for federal student assistance' if defaults exceed 40% in a single year or 30% for three straight years. '[W]e strongly urge all institutions to begin proactive and sustained outreach to former students who are delinquent or in default on their loans to ensure that such institutions will not face high [default rates] next year and lose access to federal student aid,' McMahon wrote. 3 The Trump administration warned colleges and universities Monday that if too many of their graduates are in default, they could be cut off from access to federal financial aid for students. Getty Images Advertisement The Trump administration also warned colleges that the Education Department will soon begin publishing loan non-payment rates broken down by university. 'The Department is committed to overseeing the federal student loan programs with fairness and integrity for students, institutions, and taxpayers,' McMahon wrote. 'To that end, the Department believes that greater transparency is needed regarding institutional success in counseling borrowers and helping them get into good standing on their loans.' She indicated that the data will be made public later this month.
Forbes
23-04-2025
- Business
- Forbes
What Student Loan Borrowers Should Know About The New Collections Crackdown By The Department Of Education
NEW YORK, NEW YORK - MARCH 07: United States Secretary of Education Linda McMahon visits "Fox & ... More Friends" at Fox News Channel Studios on March 07, 2025 in New York City. McMahon recently announced that collections would resume against defaulted federal student loan borrowers.(Photo by) More than five million student loan borrowers are in the Department of Education's crosshairs after the Trump administration announced new collections efforts targeting those in default on their federal student loans earlier this week. These borrowers may soon be subject to draconian collections actions by the government including wage garnishment and the offset of Social Security payments and other federal income streams. Millions of additional borrowers may also be targeted as they begin to fall further behind on their monthly payments. 'American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies,' said U.S. Secretary of Education Linda McMahon in a statement on Monday. '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, which means helping borrowers return to repayment—both for the sake of their own financial health and our nation's economic outlook.' Student loan borrower advocacy groups were critical of the department's decision to resume collections actions after a five year pause, particularly as many borrowers are struggling to navigate a complex repayment system that has been upended by legal challenges and administrative changes. '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,' said Mike Pierce, Executive Director of the Student Borrower Protection Center, in a statement. "This is cruel, unnecessary, and will further fan the flames of economic chaos for working families across this country." Here's what student loan borrowers need to know about the Department of Education's crackdown on defaulted federal student loan borrowers. The newly announced collections efforts by the Department of Education will target borrowers who are in default on their federal student loans, including Direct loans and FFEL-program loans. Under federal law, default occurs after a borrower falls more than 270 days behind on their monthly payments (prior to that 270-day threshold, the loan is considered to be 'delinquent' or past due). More than five million borrowers are currently in default on their federal student loan, according to the department. 'More than 5 million borrowers have not made a monthly payment in over 360 days and sit in default—many for more than 7 years,' said the department in a statement on Monday. But additional borrowers are delinquent on their federal student loans and may go into default within the next several months, which could dramatically increase the total number of borrowers who will be facing the department's collections efforts. 'Only 38 percent of borrowers are in repayment and current on their student loans,' said the department. '4 million borrowers are in late-stage delinquency (91-180 days). As a result, there could be almost 10 million borrowers in default in a few months. When this happens, almost 25 percent of the federal student loan portfolio will be in default.' The Department of Education intends to deploy two primary collections programs against defaulted federal student loan borrowers: Treasury Offset, and administrative wage garnishment. Both of these programs were effectively shut down in 2020 due to the Covid-19 pandemic, and haven't resumed operating since then, until now. Treasury Offset is a broad program that allows the government to intercept federal tax refunds, offset federal benefits (such as Social Security payments), and seize other federal income streams such as the salaries of federal employees and payments sent to individual federal contractors. 'FSA will restart the Treasury Offset Program, administered by the U.S. Department of Treasury, on Monday, May 5, 2025,' said the department in its announcement. Separately, the department will also pursue administrative wage garnishment against borrowers in default on their federal student loans. Through administrative wage garnishment, the government can order a private or public employer to withhold a portion of a borrower's employment earnings (typically 15%) and transfer it to the Department of Education. The government can do this without filing a lawsuit or going through a court. The department indicated it will initiate the process to garnish wages this summer. To go after a borrower's assets, such as bank accounts or property, the Department of Education would have to file a lawsuit against the borrower in court and obtain a judgment. The Trump administration has not indicated whether any collections lawsuits are planned as part of the department's broader collections efforts. The Department of Education said that it will initiate outreach efforts to defaulted federal student loan borrowers before collections activities resume next month. However, the department did not address how such efforts may be impacted by the fact that the department's staff has been effectively cut in half by mass firings and resignations, as the Trump administration takes steps to shutter it. 'All borrowers in default will receive email communications from FSA over the next 2 weeks making them aware of these developments' and urging them to contact the department, reads Monday's statement. 'FSA will conduct outreach to borrowers through emails and social media reminding them of their obligations and providing resources and support to assist them.' Once the government begins pursuing Treasury Offset or administrative wage garnishment against defaulted federal student loan borrowers, certain procedures must be followed. In particular, borrowers are entitled to an initial notice and an opportunity to respond or object. 'All FSA collection activities are required under the Higher Education Act and conducted only after student and parent borrowers have been provided sufficient notice and opportunity to repay their loans under the law,' said the department. Typically, borrowers in default on their federal student loans have 65 days to respond to a Treasury Offset notice, and 30 days to respond to an administrative wage garnishment notice. Within that timeframe, borrowers can dispute the debt, request an administrative hearing on the basis of hardship, or pursue a discharge of their federal student loans if they are eligible (such as if they are totally and permanently disabled). Borrowers can also avoid Treasury Offset or wage garnishment during the notice period by resolving their federal student loan defaults through a rehabilitation plan (a temporary payment plan based on the borrower's income) or Direct loan consolidation. These programs can restore the loans back to good standing, allowing the borrower to take advantage of various repayment plan options, as well as deferments and forbearances. However, these programs can also come with some downsides, such as hefty collections fees in some cases. Once the notice period passes, borrowers may still have options to submit an application to discharge their student loans (if they are eligible), request a hearing based on hardship, or pursue default resolution programs like rehabilitation or consolidation. However, if offset or garnishment has already begun, those actions typically won't stop until there is a resolution or a decision on the borrower's objection. And administrative wage garnishment in particular can make default resolution options more complicated (for instance, typically borrowers cannot consolidate their loans through the Direct consolidation program while in active wage garnishment). Student loan borrowers who are delinquent on their loans but haven't yet defaulted may have options to avoid default and collections altogether. These options can include requesting a deferment or forbearance (which can bring the account current, voiding out any past delinquency), and applying for income-driven repayment plans. IDR plans offer borrowers affordable payments tied to their income and family size. While the IDR processing system remains in turmoil, the Department of Education has indicated that borrowers who apply for an IDR plan will be moved into a forbearance while their application is processed.
