Latest news with #U.S.TreasuryOffsetProgram
Newsweek
4 days ago
- Business
- Newsweek
Social Security Payments May Be Lower This Month: Who's Impacted
Based on facts, either observed and verified firsthand by the reporter, or reported and verified from knowledgeable sources. Newsweek AI is in beta. Translations may contain inaccuracies—please refer to the original content. Hundreds of thousands of Americans will see their Social Security payments shrink this month as the federal government resumes garnishing benefits from borrowers who defaulted on student loans. The Department of Education and Treasury Department began issuing notices in May warning approximately 195,000 Social Security recipients that their checks would be reduced, with collections starting in early June. The Trump administration restarted federal collections on defaulted student loans after a five-year pause, marking the first time since the onset of the COVID-19 pandemic that recipients have been at risk of losing part of their Social Security income to student loan debt. "This is the latest effort to eliminate some of the forgiveness efforts under the prior administration and take student loans more seriously in terms of repayment," Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, told Newsweek. "For some Americans, the prospect of seeing smaller checks in the coming months if they fail to start making payments on their own is a very real one. Why It Matters The policy shift directly affects older Americans, many of whom rely on Social Security as their main or only source of income. The Consumer Financial Protection Bureau reported earlier this year that about 450,000 Americans aged 62 and older were in default on their federal student loans and likely receiving Social Security payments. The resumption of garnishments, which were paused for years by emergency pandemic measures, puts financially vulnerable retirees at further risk of poverty. A Social Security Administration (SSA) office in Washington, D.C., March 26, 2025. A Social Security Administration (SSA) office in Washington, D.C., March 26, 2025. SAUL LOEB/AFP via Getty Images What To Know Who Is Impacted and How Garnishments Work The U.S. Treasury Offset Program allows the government to withhold up to 15 percent of monthly Social Security benefits from borrowers in default on federal student loans. Beneficiaries receiving the average Social Security check of $1,976 could see a reduction of $296.40 per month. Recipients were shielded from collections and negative credit reporting during pandemic-era protections, but those defenses ended as the administration said it sought to restore accountability to the student loan system. A borrower is typically considered in default after missing 270 days of payments. Once in default, loans are usually transferred to collection agencies authorized to pursue garnishments through tax refunds, wages, and Social Security payments. Notices and the Scope of Collections In May, the Department of Education sent 30-day warnings to 195,000 defaulted student loan borrowers that their benefits would be garnished in June. All 5.3 million defaulted federal student loan borrowers will receive notice that they could later also face wage garnishment before the end of the summer. Demographic Impact The Consumer Financial Protection Bureau found that the number of people aged 62 or older in default on student loans and receiving Social Security has soared, with the affected group growing over 3,000 percent since 2001. These garnishments primarily pay off accumulated interest and collection fees, with relatively little reducing the original loan principal. Many older Americans facing Social Security offsets rely on these payments for most of their living expenses, and collections often force recipients to choose between paying for basic needs or health care. Options for Those in Default Banks and the Department of Education offer borrowers options to return to good standing, but these are often complex and time-consuming. Borrowers can try loan rehabilitation (making nine on-time payments within 10 months), loan consolidation, or, as a last resort, bankruptcy. Payment plans, deferment, forbearance, or income-driven repayment plans can also be arranged before default to help avoid garnishment. Financial Risks Beyond Social Security Reductions Defaulted borrowers may lose eligibility for additional federal student aid and other benefits and may suffer long-term damage to their credit scores. This can affect the ability to access credit, purchase a home, or finance other major purchases. What People Are Saying Linda McMahon, Secretary of Education, said in a statement, "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. For too long, insufficient transparency and accountability structures have allowed U.S. 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." Mike Pierce, Executive Director of the Student Borrower Protection Center,said, "For 5 million people in default, federal law gives borrowers a way out of default and the right to make loan payments they can afford. 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." Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, told Newsweek: "With the administration removing any pauses on student loan collections, wage garnishments are going to become common practice for some borrowers. If you receive Social Security benefits and having student loans that have default, know this could be a reality for you moving forward." Kevin Thompson, the CEO of 9i Capital Group and the host of the 9innings podcast, told Newsweek: "This could be detrimental for some beneficiaries, as the payments may be their primary source of income. Not receiving what was anticipated is disheartening. However, it's important to note that these garnishments were originally paused in 2020 during the COVID-19 pandemic. Now, the garnishments are set to resume, affecting millions of borrowers." What Happens Next The Trump administration is pursuing further reforms to student loan repayment systems and plans to overhaul federal loan programs, as outlined in the One Big Beautiful Bill Act passed by the House of Representatives last month. Additional regulatory and legislative changes may affect how collections and relief are administered in the future, granted this change is just ending what was supposed to be a temporary pause in Social Security garnishment due to the pandemic. "The Trump administration isn't making new changes but rather reinstating policies that were paused in 2020," Thompson said. "At some point, these payments were bound to resume, though many borrowers may have believed their loans would be forgiven under the Biden administration. That forgiveness effort has largely fallen by the wayside, and the Trump administration is now making it clear that all loans must be repaid regardless of whether the institution attended was later deemed predatory."
Yahoo
01-05-2025
- Business
- Yahoo
Involuntary Collections Explained for Student Loan Borrowers
Students studying in a library. Credit - Maskot—Getty Images The U.S. Department of Education announced on April 21 that the Office of Federal Student Aid (FSA) will restart its student debt collections on May 5. The announcement marks the first time in five years that the federal government may penalize Americans who fall behind on their student loan payments. Part of that penalization includes the resumption of 'involuntary collections,' which can lead to the garnishing of wages. According to the announcement, borrowers will begin receiving collection notices through the U.S. Treasury Offset Program before any further action is taken. 'The Department will also authorize guaranty agencies that they may begin involuntary collections activities on loans under the Federal Family Education Loan Program,' per the press release. There is the disclaimer, though, that '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.' Involuntary collections are 'one of the harshest consequences borrowers can face when federal student loans fall into default,' says Ken Ruggiero, co-founder and CEO of Ascent Funding, an education loan provider. This occurs typically after 270 days, or close to nine months, of missed payments. 'It's an aggressive, automated system that often catches borrowers off guard and deepens their financial hardship,' says Ruggiero. 'In addition to the financial hardship, the student borrower is often embarrassed when their employer is notified and then implements wage garnishments.' Here is what student borrowers should know about involuntary collections, and the advice experts offer: Through involuntary collections, the government can garnish wages, withhold tax refunds, and seize portions of Social Security checks and other benefit payments to go toward paying back the federal loan. According to the Treasury Department, for those who have defaulted on their federal loans, the Treasury Offset Program can withhold to 100% of federal tax refunds, up to 15% of federal salaries, up to 15% of Social Security and Railroad Retirement benefits, up to 25% of federal retirement payments, 100% of payments to vendors, and 100% of travel payments for federal employees. Wage garnishment, which the Education Department's announcement said will begin late in the summer, is when your loan holder can order your employer to withhold up to 15% of your disposable pay to collect your defaulted debt, without taking you to court. Department of Education Secretary Linda McMahon wrote an opinion piece in the Wall Street Journal in conjunction with the announcement of collections restarting, in which she articulated the department's outlook. 'Borrowers who don't make payments on time will see their credit scores go down, and in some cases their wages automatically garnished,' she wrote. 'Why? Not because we want to be unkind to student borrowers. Borrowing money and failing to pay it back isn't a victimless offense.' Jonathan Collins, assistant professor of political science and education at Teachers College, Columbia University, says that though this is a pre-2020 system, there is a difference here with the Trump Administration. 'Usually standard practice for the federal government is to work with the borrowers, and if there are issues with repayment, they usually grant forbearance periods, and you can apply for extension on forbearance periods,' Collins says. 'But, what [The Trump Administration is] trying to do is get rid of, if not drastically reduce, the amount of people who are in this forbearance zone.' Experts' main advice is to be proactive and act now. 'All of the responsibility is on the borrower,' says Nicholas Hillman, professor in the school of education at the University of Wisconsin-Madison. But there are options out there for borrowers. Ruggerio suggests that those struggling to meet payments should explore an income-driven repayment (IDR) plan, with the intention of reducing their monthly payments in accordance with their income and family size. 'The window to get out of default through options like consolidation or rehabilitation is still open—waiting until collections begin only limits your options,' he says. On Feb. 18, 2025, a federal court issued a new injunction preventing the Department of Education from implementing the Saving on a Valuable Education (SAVE) plan. But other repayment programs remain available, including the Pay As You Earn (PAYE) program and the Income-Contingent Repayment (ICR) plan. Hillman recommends navigating through the federal loan servicers to identify who your loan servicer is, and then contacting said federal loan servicer for further information. Collins adds that in order to do this, borrowers must first make sure that their loans were federally supplied, rather than serviced through the private sector. This way, borrowers can have a clear idea of where their loan stands. Khandice Lofton, counsel at the Student Protection Borrower Center (SPBC), recommends that borrowers look at the National Consumer Law Center (NCLC), which has a toolkit that provides information for how borrowers can seek consolidation or rehabilitation—two ways borrowers can get out of default by either making payments or consolidating their loans. Furthermore, Lofton also recommends looking into legal and political modes of protesting the way in which the Trump Administration is continuing the student federal loan collections. 'What we're pushing right now is for every borrower to take steps to reach out to their elected officials. Why? Because these officials [are] now responsible for helping them get engaged in government programs,' she says. Part of the confusion related to involuntary collections, experts say, relates to both the pause on student loan collections and repayments brought about by the COVID-19 pandemic—a pause which occurred from March 2020 until September 2023, as well as the efforts by former President Joe Biden to grant student loan forgiveness—attempts that were struck down at the courts and differ from President Donald Trump and his Administration. Still, federal student loan repayments began again in Oct. 2023, though the Biden Administration gave one year as an 'on ramp' for borrowers to transition back to repayments, notes Hillman. For that one year—from Oct. 1, 2023 until Sept. 30, 2024—the records of student borrowers who missed monthly payments would not be considered delinquent, nor would the individuals be reported to credit bureaus, sent to collections, or referred to the Treasury Offset Program. But after Sept. 30, 2024, Hillman says the 'ramp was closed, and it's sort of business as usual'—a return to the 2020 repayment system. And now, starting May 5, major consequences may be felt by around 9.7 million borrowers who are past due on their bills since the end of the relief period, according to the Federal Reserve Bank of New York. But, the confusion regarding these systems, Hillman argues, means that many Americans may have defaulted on their student loans without fully understanding the consequences. This is exacerbated as Biden's SAVE program makes its way through the courts and Republicans propose to overhaul the repayment plans, all while the Trump Administration attempts to dismantle the Department of Education, which houses the FSA. 'It's so confusing for borrowers,' says Lofton. 'Borrowers should understand this isn't their fault, and they shouldn't be forced to pay the price for this dysfunction that's going on right now.' Lofton also argues that the Trump Administration's commitment to restarting collections is misaligned with the affordability arguments upon which the President campaigned. 'This could not have come at a worse time where things right now are so uncertain, financially and economically, and during a time where borrowers are already struggling to pay for things like rent, groceries, medical bills, just day to day life,' Lofton says. The important thing to remember, Hillman notes, is that student loan borrowers who have found themselves in limbo are not alone. 'You have like a third of borrowers who are current, they're making payments. You have a third of borrowers who are either in some sort of deferment or forbearance … and the other third are either going for or [already] in default,' Hillman says. "It's massive, because the loan repayment system is fundamentally broken.' Contact us at letters@
Time Magazine
01-05-2025
- Business
- Time Magazine
What to Know About ‘Involuntary Collections' If You're a Student Loan Borrower
The U.S. Department of Education announced on April 21 that the Office of Federal Student Aid (FSA) will restart its student debt collections on May 5. The announcement marks the first time in five years that the federal government may penalize Americans who fall behind on their student loan payments. Part of that penalization includes the resumption of 'involuntary collections,' which can include the garnishing of wages. According to the announcement, borrowers will begin receiving collection notices through the U.S. Treasury Offset Program before any further action is taken. 'The Department will also authorize guaranty agencies that they may begin involuntary collections activities on loans under the Federal Family Education Loan Program,' per the press release. There is the disclaimer, though, that '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.' Involuntary collections are 'one of the harshest consequences borrowers can face when federal student loans fall into default,' says Ken Ruggiero, co-founder and CEO of Ascent Funding, an education loan provider. This occurs typically after 270 days, or close to nine months, of missed payments. 'It's an aggressive, automated system that often catches borrowers off guard and deepens their financial hardship,' says Ruggiero. 'In addition to the financial hardship, the student borrower is often embarrassed when their employer is notified and then implements wage garnishments.' Here is what student borrowers should know about involuntary collections, and the advice experts offer: What can be withheld under involuntary collections? Through involuntary collections, the government can garnish wages, withhold tax refunds, and seize portions of Social Security checks and other benefit payments to go toward paying back the federal loan. According to the Treasury Department, for those who have defaulted on their federal loans, the Treasury Offset Program can withhold to 100% of federal tax refunds, up to 15% of federal salaries, up to 15% of Social Security and Railroad Retirement benefits, up to 25% of federal retirement payments, 100% of payments to vendors, and 100% of travel payments for federal employees. Wage garnishment, which the Education Department's announcement said will begin late in the summer, is when your loan holder can order your employer to withhold up to 15% of your disposable pay to collect your defaulted debt, without taking you to court. What have Trump officials said about involuntary collections? Department of Education Secretary Linda McMahon wrote an opinion piece in the Wall Street Journal in conjunction with the announcement of collections restarting, in which she articulated the department's outlook. 'Borrowers who don't make payments on time will see their credit scores go down, and in some cases their wages automatically garnished,' she wrote. 'Why? Not because we want to be unkind to student borrowers. Borrowing money and failing to pay it back isn't a victimless offense.' Jonathan Collins, assistant professor of political science and education at Teachers College, Columbia University, says that though this is a pre-2020 system, there is a difference here with the Trump Administration. 'Usually standard practice for the federal government is to work with the borrowers, and if there are issues with repayment, they usually grant forbearance periods, and you can apply for extension on forbearance periods,' Collins says. 'But, what [The Trump Administration is] trying to do is get rid of, if not drastically reduce, the amount of people who are in this forbearance zone.' What can student borrowers do to avoid involuntary collections? Experts' main advice is to be proactive and act now. 'All of the responsibility is on the borrower,' says Nicholas Hillman, professor in the school of education at the University of Wisconsin-Madison. But there are options out there for borrowers. Ruggerio suggests that those struggling to meet payments should explore an income-driven repayment (IDR) plan, with the intention of reducing their monthly payments in accordance with their income and family size. 'The window to get out of default through options like consolidation or rehabilitation is still open—waiting until collections begin only limits your options,' he says. On Feb. 18, 2025, a federal court issued a new injunction preventing the Department of Education from implementing the Saving on a Valuable Education (SAVE) plan. But other repayment programs remain available, including the Pay As You Earn (PAYE) program and the Income-Contingent Repayment (ICR) plan. Hillman recommends navigating through the federal loan servicers to identify who your loan servicer is, and then contacting said federal loan servicer for further information. Collins adds that in order to do this, borrowers must first make sure that their loans were federally supplied, rather than serviced through the private sector. This way, borrowers can have a clear idea of where their loan stands. Khandice Lofton, counsel at the Student Protection Borrower Center (SPBC), recommends that borrowers look at the National Consumer Law Center (NCLC), which has a toolkit that provides information for how borrowers can seek consolidation or rehabilitation—two ways borrowers can get out of default by either making payments or consolidating their loans. Furthermore, Lofton also recommends looking into legal and political modes of protesting the way in which the Trump Administration is continuing the student federal loan collections. 'What we're pushing right now is for every borrower to take steps to reach out to their elected officials. Why? Because these officials [are] now responsible for helping them get engaged in government programs,' she says. Understanding the timeline of student loan relief over the last few years Part of the confusion related to involuntary collections, experts say, relates to both the pause on student loan collections and repayments brought about by the COVID-19 pandemic—a pause which occurred from March 2020 until September 2023, as well as the efforts by former President Joe Biden to grant student loan forgiveness —attempts that were struck down at the courts and differ from President Donald Trump and his Administration. Still, federal student loan repayments began again in Oct. 2023, though the Biden Administration gave one year as an 'on ramp' for borrowers to transition back to repayments, notes Hillman. For that one year—from Oct. 1, 2023 until Sept. 30, 2024—the records of student borrowers who missed monthly payments would not be considered delinquent, nor would the individuals be reported to credit bureaus, sent to collections, or referred to the Treasury Offset Program. But after Sept. 30, 2024, Hillman says the 'ramp was closed, and it's sort of business as usual'—a return to the 2020 repayment system. And now, starting May 5, major consequences may be felt by around 9.7 million borrowers who are past due on their bills since the end of the relief period, according to the Federal Reserve Bank of New York. But, the confusion regarding these systems, Hillman argues, means that many Americans may have defaulted on their student loans without fully understanding the consequences. This is exacerbated as Biden's SAVE program makes its way through the courts and Republicans propose to overhaul the repayment plans, all while the Trump Administration attempts to dismantle the Department of Education, which houses the FSA. 'It's so confusing for borrowers,' says Lofton. 'Borrowers should understand this isn't their fault, and they shouldn't be forced to pay the price for this dysfunction that's going on right now.' Lofton also argues that the Trump Administration's commitment to restarting collections is misaligned with the affordability arguments upon which the President campaigned. 'This could not have come at a worse time where things right now are so uncertain, financially and economically, and during a time where borrowers are already struggling to pay for things like rent, groceries, medical bills, just day to day life,' Lofton says. The important thing to remember, Hillman notes, is that student loan borrowers who have found themselves in limbo are not alone. 'You have like a third of borrowers who are current, they're making payments. You have a third of borrowers who are either in some sort of deferment or forbearance … and the other third are either going for or [already] in default,' Hillman says. "It's massive, because the loan repayment system is fundamentally broken.'
