Updated with comments from the Education Department.
On Wednesday, the Education Department said it will refund about $1.8 billion to more than 830,000 borrowers whose wages, Social Security payments and tax refunds have been garnished since March 13. The federal agency expects the number of people who will benefit to increase as student loan servicers, the middlemen who collect payments on behalf of the government, work through additional offsets in the queue.
In documents obtained by The Washington Post, the department informed the private collection agencies it uses to stop calling borrowers, issuing notices or billing statements. Collection companies, however, are still allowed to receive calls from people inquiring about their debt.
The Education Department has stopped all requests to the U.S. Treasury Department to withhold money from defaulted borrowers and will hold off on transferring new accounts to its private debt collectors for at least 60 days from March 13.
“These are difficult times for many Americans, and we don’t want to do anything that will make it harder for them to make ends meet or create additional stress,” Education Secretary Betsy DeVos said Wednesday in a statement. “Americans counting on their tax refund or Social Security check to make ends meet during this national emergency should receive those funds, and our actions today will make sure they do.”
There are more than 9 million Americans who have not made a payment on their federal student loans in nearly a year — defaults that would typically place them at risk of having a portion of their paycheck, Social Security or disability income garnished by the federal government.
“This was the right thing to do,” said Adam S. Minsky, a Boston-based attorney who represents student loan borrowers. “People are desperately struggling with reduced income and job loss, and every penny matters.”
Consumer groups have spent weeks urging the administration to take more decisive action to help borrowers and pushing liberal lawmakers to do the same. Congressional Democrats have proposed a series of measures to help borrowers, including the suspension of involuntary collections, in the economic relief package, but their efforts have been stymied by partisan fights over a proposal to cancel $10,000 in student debt for each borrower.
Alexis Goldstein, senior policy analyst at the liberal think tank Americans for Financial Reform, called the Trump administration’s announcement a “crucial first step,” but said Congress needs to codify the halt in collections and extend it back further than March 13.
“At this time of crisis when so many defaulted borrowers are more strapped for cash than ever, everyone who’s had wages garnished in 2020, or had their tax refunds already seized due to a defaulted student loan should get refunded," Goldstein said.
