Latest news with #TreasuryOffset
Forbes
5 days ago
- Business
- Forbes
For 18 Million Student Loan Borrowers, The Government Is Coming For Your Paycheck
WASHINGTON, DC - MAY 20: President Donald Trump and House Speaker Mike Johnson (R-LA) speak to ... More reporters following a closed-door meeting with House Republicans on May 20, 2025 on Capitol Hill in Washington. The Trump administration and House Republicans have taken steps to ramp up collections and payments for millions of federal student loan borrowers. (Photo by Tom Brenner For The Washington Post via Getty Images) The Trump administration is clamping down on federal student loan defaults; at the same time, Republican lawmakers in Congress just took a major step to narrow affordable repayment plan options. Taken together, this could mean that millions of borrowers will see substantial cuts to their paychecks in the coming months. Despite an unexpected collections reprieve for Social Security benefits recipients announced by the Department of Education earlier this week, the broader collections crackdown against student loan borrowers appears to be moving forward. More than five million borrowers are currently in default on their federal student loans and may soon be subject to wage garnishment and federal offset. That figure could jump to 10 million borrowers by the end of the year, according to department officials, as Americans struggle to navigate a repayment plan system facing serious legal and administrative challenges. Meanwhile, if legislation recently passed by the House of Representatives becomes law, an additional eight million borrowers enrolled in the SAVE plan could be forced to make significantly higher payments under different repayment plans by the end of the year. Here's what student loan borrowers need to know. In May, the Department of Education officially resumed activities to collect on defaulted federal student loans. The government has vast powers to force student loan borrowers to pay under these circumstances, without needing to go through the formal court system. The department has first initiated Treasury Offset for approximately 5.3 million borrowers. Treasury Offset allows the U.S. Department of Treasury to forcibly intercept federal income streams before they can reach a borrower's bank account. For example, the government can garnish up to 15% of federal employee wages, and can seize up to 100% of payments owed to federal contractors and vendors. The government can also intercept up to 100% of a federal tax refund, and offset up to 15% of Social Security benefits, although Social Security offset is now temporarily paused following this week's announcement. The department began sending Treasury Offset warnings to defaulted student loan borrowers last month. Once a borrower receives an official notice prior to Treasury Offset, they have a brief window of time (typically 60 days) to take steps to avoid offset. This can include requesting an administrative hearing to dispute the debt or requesting an exemption based on financial hardship; getting out of default through federal default resolution programs like student loan rehabilitation or Direct loan consolidation; filing for bankruptcy; or applying for an administrative discharge if eligible. The next step the Department of Education will take against defaulted federal student loan borrowers is administrative wage garnishment. This is a separate process from Treasury Offset, and allows the government to order private employers to withhold up to 15% of a defaulted borrower's earnings and apply it involuntarily to their student debt. Importantly, the department can pursue administrative wage garnishment in addition to Treasury Offset – they are not mutually exclusive programs (except for federal employees). That means if you are in default on your loans, the government could take 15% of your pay, and also seize your entire tax refund, for instance. As with Treasury Offset, the government is required to send out initial notifications to borrowers, typically titled a 'Notice Prior To Wage Withholding.' This notice will outline a borrower's options to avoid wage garnishment. These can include notifying the department that the borrower has only recently become employed following a period of unemployment; disputing the student loan debt; requesting an administrative hearing based on hardship; filing for bankruptcy; applying for federal default resolution programs like loan rehabilitation or Direct loan consolidation; or applying for an administrative discharge if applicable. Borrowers have only a limited time to act, typically 30 days, before the garnishment will begin. Importantly, borrowers may still have options to end wage garnishment and get out of default after wage garnishment has begun, but it can be much more difficult at that stage of the process. For example, to pursue loan rehabilitation, borrowers may have to make monthly rehabilitation payments in addition to their garnishment payments for a period of at least five months before the garnishment can be suspended. Direct loan consolidation may not be an option at all while a borrower is in active wage garnishment. And many borrowers pursuing administrative discharge or a hardship exemption will continue to be garnished until and unless they ultimately receive a favorable determination. The department has indicated that administrative wage garnishment could begin as soon as the end of this month. Meanwhile, more than eight million non-defaulted federal student loan borrowers who had enrolled in the SAVE plan may be hit with massively higher monthly payments later this year. That's because House Republicans just passed legislation that would repeal the SAVE plan and force these borrowers into a modified version of IBR that might be far more expensive. Here are some examples of how this may significantly increase monthly student loan payments based on income: Under the GOP bill, borrowers would have the option of forgoing IBR and instead enrolling in a new income-driven repayment plan called the Repayment Assistance Plan, or RAP. RAP may be more affordable in some cases, but it might be more expensive for other borrowers, and the plan would keep borrowers in repayment for up to 30 years before they could qualify for student loan forgiveness – far longer than any other current IDR plan: The House-passed legislation has not become law yet, as it must now be considered by the Senate, which may make changes to the bill's provisions. But it appears increasingly likely that the SAVE plan will not survive. As a result, millions of student loan borrowers will have to contend with much higher payments in as soon as six months, as well as delayed student loan forgiveness, under any of the alternatives.
Forbes
05-05-2025
- Business
- Forbes
Student Loan Collections Starts Today—5 Ways To Avoid Being Garnished
WASHINGTON, DC - APRIL 30: Education Secretary Linda McMahon speaks during a Cabinet meeting at the ... More White House on April 30, 2025 in Washington, DC. McMahon announced the resumption of collections efforts against defaulted federal student loan borrowers earlier that month. (Photo by) The Department of Education is set to resume collections activities against defaulted federal student loan borrowers on Monday. The collections system had been largely suspended for more than five years, largely due to pandemic-era relief programs. But those programs have now expired, and the Trump administration signaled last month that efforts to forcibly collect from defaulted federal student loan borrowers will quickly ramp up. 'The Department has not collected on defaulted loans since March 2020,' said a department announcement last month. 'Resuming collections protects taxpayers from shouldering the cost of federal student loans that borrowers willingly undertook to finance their postsecondary education.' '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 last month accompanying the announcement. '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.' The collections activities will commence this week with the resumption of the Treasury Offset program. Treasury Offset authorizes the government to intercept federal tax refunds, garnish Social Security payments, and offset other federal income streams, including federal salaries. Administrative wage garnishment, which allows the government to seize a portion of a borrower's employment income from private and public employers, will resume later this summer. Federal student loan collections actions can have significant financial ramifications for student loan borrowers. Here's how to protect yourself. Only federal student loans that are in a default status can be subject to Treasury Offset and administrative wage garnishment. 'Default' is a term that has a specific definition under federal law for Direct and FFEL-program loans: the loan must be past due by at least 270 days (roughly the equivalent of nine months) to be in default. 'For a loan made under the William D. Ford Federal Direct Loan Program or the Federal Family Education Loan Program, you're considered to be in default if you don't make your scheduled student loan payments for at least 270 days,' says Department of Education guidance. If you are in regular repayment on your student loans under an approved repayment plan, you are not in default. In addition, certain periods of non-payment (such as a deferment, a forbearance, or a grace period) do not constitute default, even though no payments are being made. To verify whether you have a defaulted federal student loan, log into your account at Your account dashboard will summarize your outstanding federal student loans and should alert you if you have any accounts that are in default. If you have fallen behind on your federal student loans, that's not ideal. Missing payments on a student loan is known as 'delinquency,' and can lead to late fees and negative credit reporting. But there may still be time to avert default, cure the delinquency, and bring your account back to good standing again. 'The first day after you miss a student loan payment, your loan becomes past due, or delinquent,' says Department of Education guidance. 'If you are delinquent on your student loan payment for 90 days or more, your loan servicer will report the delinquency to the national credit bureaus, which can negatively impact your credit rating. If you continue to be delinquent, you risk your loan going into default.' If you are less than 270 days past due on a federal student loan, there may be time to avert default. You can pay the past due balance, or you can contact your loan servicer to request a retroactive deferment or forbearance; this can cancel out the past due balance and bring the account current. Borrowers who apply for an income-driven repayment plan, a type of payment plan tied to income and family size, may be put into an administrative forbearance to suspend payments while their application is processed. While a loan must be in good standing to qualify for certain federal student loan forgiveness programs like Public Service Loan Forgiveness or Teacher Loan Forgiveness, certain administrative discharge programs are available regardless of the loan's status. One of the most popular administrative discharge programs is the Total and Permanent Disability Discharge program, also referred to as TPD Discharge. This program allows borrowers to request cancellation of their federal student loans if they are unable to engage in substantial, gainful activity due to a severe medical impairment. The Department of Education recently resumed processing TPD Discharge applications after a pause earlier this year during a system transition. There are also several school-based discharge options. These programs include a Closed-School Discharge if a borrower was unable to complete their program due to a school closure, and an Ability to Benefit discharge if they did not have a high school diploma or GED at the time of enrollment, and their school did not adequately test their ability to benefit from the educational program. Borrowers can also pursue a discharge of their federal student loan debt through bankruptcy. It is difficult, but not impossible, to do this. A borrower must be able to demonstrate that repayment of their student loan would be an undue hardship; to do that, they must initiate an adversary proceeding against their lender (which, for Direct federal student loans is the government) in the bankruptcy court. A new financial attestation process can make it easier for some borrowers to pursue a bankruptcy discharge. If you're in default on a federal student loan, you may have pathways to get out of default and back into good standing again. Doing so can allow a borrower to avoid involuntary collections actions such as Treasury Offset and administrative wage garnishment. However, default resolution programs can come with some downsides. One option is loan rehabilitation, which is a temporary payment program typically lasting nine to 10 months. Borrowers make payments based on their income during the rehabilitation period. After successful completion of the rehabilitation program, their student loan would be restored to good standing again, eliminating any immediate risk of offset or wage garnishment. Rehabilitation can also result in the deletion of any default-related credit reporting, although the record of missed payments can remain in a borrower's credit report for some time. Borrowers should be aware that FFEL guaranty agencies and the Department of Education are authorized under law to charge hefty collections fees, which can be rolled into the overall loan balance upon completion of the rehabilitation program. Another default resolution option is Direct loan consolidation, which allows borrowers to take out a new loan through the Department of Education that repays any federal student loans that are in default. There is no credit check associated with this process, and borrowers do not have to make payments while in default to consolidate (unlike for rehabilitation), but they must select an income-driven repayment plan for the Direct consolidation loan. Consolidation does not delete any 'default' reference on a borrower's credit report, and – like rehabilitation – can come with significant collections fees. Consolidating loans that have existing IDR credit toward student loan forgiveness can also result in the erasure of that credit. A final default resolution option would be settlement. However, settlements of defaulted federal student loans are governed by fairly strict guidelines, which limits any resulting balance reduction. Settlements typically must be paid in a lump sum payment, which may be prohibitively expensive for many borrowers. There may also be tax consequences associated with a settlement. Before the federal government can refer a defaulted federal student loan borrower to Treasury Offset or start garnishing their wages, borrowers must receive an initial notice and an opportunity to respond. The response window is 65 days for Treasury Offset, and 30 days for administrative wage garnishment. Federal student loan borrowers can dispute the debt during this notice window, or apply for an administrative discharge if they qualify. They can also request a hearing based on financial hardship, which requires that the borrower complete and submit a detailed financial statement form (which typically accompanies the notice paperwork). Any offset or garnishment should be postponed while the borrower's request is adjudicated, as long as the request is made within the notice period. After offset or wage garnishment has begun, borrowers can still object or request a hearing, but that won't stop the offset or garnishment unless the borrower ultimately prevails.
