Nearly 200,000 federal student loan borrowers were notified this week that their wages and benefits are about to be seized by the government. The warnings represent the first wave of involuntary collections actions that the Department of Education has initiated against borrowers in default on their federal student loans.
“Starting today, approximately 195,000 defaulted student loan borrowers will begin receiving an official 30-day notice from the U.S. Department of Treasury notifying them that their federal benefits will be subjected to the Treasury Offset Program,” said the Department of Education in a statement on Monday.
The action follows a department announcement last month that the government is restarting administrative collections programs against defaulted federal student loan borrowers after a five-year pause. These programs give the federal government vast powers to seize income and payments from people without any court order or lawsuit.
“American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies,” said Secretary of Education Linda McMahon in a statement at the time, blaming the Biden administration for “misleading” people by offering defaulted federal student loan borrowers extended relief from collections as the Covid-19 pandemic wound down.
Here’s what student loan borrowers should expect as the federal government ramps up its efforts to seize benefits and wages from people who are in default.
195,000 Defaulted Federal Student Loan Borrowers Will Be Subject To Seizure Of Wages and Benefits
The Department of Education’s first wave of collections actions is being implemented through the Treasury Offset Program. This program, run by the U.S. Department of Treasury, allows the government to intercept or offset federal income streams before an individual receives it. The government then applies that income to the borrower’s defaulted federal student loan balance.
“The Treasury Offset Program (TOP), operated by the Department of the Treasury’s Bureau of the Fiscal Service, is a fully-automated, centralized offset program that intercepts federal and state payments to collect delinquent debts owed to federal and state agencies,” says a Treasury Department fact sheet. “Federal agencies must notify TOP of all nontax debts delinquent more than 120 days. Federal disbursing officials must offset payments to collect such debts.”
The Treasury Offset Program allows the government to seize or offset a variety of federal income and benefits, including:
- Up to 100% of federal tax refunds owed to a student loan borrower;
- Up to 100% of federal vendor and federal employee travel-related payments;
- Up to 15% of federal employee salaries and wages;
- Up to 25% of federal employee retirement benefits;
- Up to 15% of Social Security and Railroad Retirement benefits;
- Up to 100% of state payments owed to federal student loan borrowers, if the state enters into a reciprocal agreement with the U.S. Department of Treasury.
“The first monthly benefit checks subject to offset are those scheduled for early June,” said the Department of Education in its announcement this week. That means that borrowers who receive Treasury Offset notices now will have only a few weeks to act if they want to avoid the seizure of their federal wages or benefits.
Millions Of Additional Student Loan Borrowers Will Be Issued Wage Garnishment Notices This Summer
The Treasury Offset Program notices being sent out this week represent just the initial wave of warnings that the government will be sending to defaulted federal student loan borrowers. Millions of additional borrowers are also at risk of having their wages garnished, even if they don’t work for the federal government or receive federal benefits. Under federal law, the government can order a private employer to withhold up to 15% of an employee’s salary or wages to pay their defaulted federal student loan debt through administrative wage garnishment.
“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,” said the Department of Education in its Monday announcement. Some department officials anticipate that given the rising numbers of borrowers falling behind on their student loan payments, more than 10 million borrowers could end up in default by the end of the year.
“More than six million borrowers are set to once again face a range of severe and punitive consequences as the federal government’s vast debt collection machine turns back on,” said The Institute for College Access and Success in a blast email last month. “Another 9 million are late on their payments and at high risk of entering default within the year. 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 decision to resume the government’s collections machine marks the first time in five years that the federal government will penalize Americans who fall behind on their student loan payments,” said the Student Borrower Protection Center in an email in April. “The announcement also comes as Americans are navigating unprecedented economic uncertainty—struggling to cover the rising costs of everyday goods, dealing with the economic fallout of mass firings of more than 24,000 federal workers all while being unable to access the full suite of affordable repayment options to help better manage their student loans.”
What Student Loan Borrowers Should Know About Benefits Offsets And Wage Seizures
Importantly, only borrowers in default on their federal student loans are receiving these notices and would be subject to Treasury Offset or private employer wage garnishment. To be in default, a borrower must be behind or past due on their monthly payments by at least 270 days. Those who are in normal repayment, or in a deferment or forbearance status, cannot have their benefits offset or their wages seized.
In addition, defaulted federal student loan borrowers must be issued a formal notice to their last known address, and given an opportunity to respond, before the offset or garnishment can begin.
“Notice must explain the debtor’s rights and opportunities to dispute the debt, examine and request copies of agency records, request administrative review of the determination of indebtedness, and enter into a compromise or repayment plan acceptable to the agency,” says the Treasury Department fact sheet.
Borrowers in default on their federal student loans who receive a Treasury Offset notice or notice of proposed wage withholding have options. They can object to the offset or garnishment and request a hearing based on financial hardship; they can apply for an administrative discharge of their student loan debt if they qualify; they can settle their debt through a compromise; or they can pursue federal student loan default resolution programs such as rehabilitation or Direct loan consolidation, which would then allow them to access federal student loan programs like income-driven repayment and Public Service Loan Forgiveness.
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