Education Department Halts Wage Garnishment for Student Loans

The U.S. Department of Education announced on March 15, 2024, that it will temporarily suspend forced collections on federal student loans, including measures such as Administrative Wage Garnishment and the Treasury Offset Program. This decision aims to enhance the efficiency and fairness of the collection process, as stated by Under Secretary of Education Nicholas Kent.

This announcement marks a significant shift in policy, reversing the department’s recent actions. Earlier in March, the Department began sending out garnishment notices to borrowers in default, with the potential to deduct up to 15% of a borrower’s paycheck. Approximately 1,000 notices had been issued, affecting a small segment of the over 5 million borrowers currently in default.

New Repayment Rules and Legislative Changes

The decision to delay collections allows the Department to implement new repayment regulations under the Working Families Tax Cuts Act. These changes will streamline the federal student loan system by reducing the number of repayment options to two: a standard repayment plan and an income-driven repayment plan. A new income-driven option is scheduled to launch on July 1, 2026. This plan will waive unpaid interest for borrowers who make on-time payments that do not fully cover accrued interest. Additionally, the Department may provide small matching payments to help reduce outstanding loan balances.

The legislation also introduces a significant change for borrowers, allowing a second chance at rehabilitating a defaulted federal student loan. Previously, this opportunity was only available once.

Impact on Borrowers

During this pause in collections, the Department urges borrowers in default to actively engage with their loan servicers to explore resolution options. It is important to note that student loan defaults will still be reported to credit reporting agencies, which could adversely affect borrowers’ credit scores.

As the Department of Education navigates these changes, the temporary halt in wage garnishment and other collection efforts provides a crucial window for borrowers to reassess their financial situations and understand the upcoming modifications to the student loan landscape.