Education Secretary Betsy DeVos (Photo by Mark Wilson/Getty Images)
A new class action lawsuit claims that U.S. Secretary of Education Betsy DeVos is illegally seizing paychecks from student loan borrowers during the Coronavirus pandemic.
Here’s what you need to know.
Student Loans: Debt Collection
The CARES Act - the $2.2 trillion stimulus package to provide financial support to Americans in the wake of the Coronavirus pandemic - provides several protections for federal student loan borrowers from March 13, 2020 through September 30, 2020. Among other benefits, this includes:
- federal student loans have been suspended,
- interest rate on federal student loans has been set to 0%, and
- no federal student loan debt collection on defaulted student loans.
That last provision - no student loan debt collection on defaulted student loans - is at the center of this lawsuit, which was filed yesterday in federal court in the Washington, D.C. on behalf of student loan borrowers who claim their wages are being illegally seized to pay their federal student loans. The Education Department has not yet responded to the lawsuit.
“Right now, low-wage workers hit hardest by the economic impact of the pandemic need their paychecks to keep food on the table and a roof over their heads,” Persis Yu, director of the National Consumer Law Center’s Student Loan Borrower Assistance Project, said. “By continuing to use its harsh collection tools during this public health and economic crisis, the Department of Education is placing the health, safety, and well-being of vulnerable student loan borrowers in peril.”
The lead plaintiff is Elizabeth Barber, a home health aide, who earns $12.36 per hour. According to her complaint, Barber says her work schedule has been reduced, she has no money in her bank account, unpaid local taxes, a lien on her home, and is past due on student loans as well as water and electric bills. Despite these financial challenges, Barber says that the Education Department garnished her wages (an apparent violation of the CARES Act) to pay her past-due federal student loans.
Student Loan Default: Wage Garnishment
Can the federal government garnish your wages if you default on your federal student loans? Yes. (The CARES Act temporarily has halted this practice through September 30, 2020). The federal government can lawfully withhold up to 15% of a borrower’s paycheck to collect on past-due federal student loan debt. The latest student loan debt statistics show that in 2018, for example, the U.S. Department of Education legally garnished $840 million through wage garnishment. Last month, the Education Department garnished wages of approximately 285,000 federal student loan borrowers.
What happens if your wages are garnished? Do you have any recourse?
If your wages were garnished for a federal student loan debt after March 13, 2020 (the effective date of the CARES Act), you are entitled to a refund of the amount garnished. This is because the CARES Act stops the federal government from garnishing your wages, tax refund or Social Security benefits, for example, to satisfy defaulted student loan debt. If your wages were garnished prior to March 13, 2020, unfortunately you cannot receive a refund. After September 30, 2020, absent an extension of the CARES Act or replacement legislation, the U.S. Department of Education can lawfully resume wage garnishment for past-due federal student loan debt. Importantly, the CARES Act only applies to federal student loans, not private student loans. Private debt collectors can seize your stimulus check or wages, for example, if you have past-due private debt such as private student loans, credit card debt or medical debt.
Governors from some states such as Oregon, Washington and Illinois have issued executive orders which prohibits private debt collectors from seizing stimulus checks. The Education Department says it has instructed private student loan debt collectors not make collection calls and not accept auto-debit payments through Sept. 30, 2020. Senator Cory Booker (D-NJ) and Rep. Ayanna Pressley (D-MA) and 40 members of Congress sent a letter to DeVos demanding that the Education Department stop any ongoing illegal garnishment of wages to collect federal student loan debt and to provide a clear timeline for when borrowers who have been impacted can receive a full refund.
What To Do
If your tax refund, Social Security, wages or disability payment was garnished: Call the Education Department’s Default Resolution Group at 1-800-621-3115 (TTY for the deaf or hearing-impaired 1-877-825-9923).
Helpful Resources: Student Loans
Here’s everything that’s happened to your student loans in 2 weeks
How to pay your student loans during Coronavirus
How to get financial relief for your student loans during Coronavirus
How to get relief for your private student loans
Should you pay off student loans during COVID-19?
These companies are hiring despite Coronavirus
What you need to know about paid sick leave during Coronavirus
Do you qualify for paid sick leave?
How to contact your student loan servicer
5 ways to lower your student loan payments during Coronavirus
