Student Loan Borrowers Sue Over Continuing Wage Garnishment

The CARES Act, signed into law on March 27, 2020, offered relief for federal student loan borrowers during the Coronavirus pandemic.

The bill automatically stopped federal student loan payments and stated it would suspend wage garnishments and other collection activities for those borrowers in default. However, the U.S. Department of Education continues to garnish the wages of tens of thousands of borrowers.

“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,” said Education Secretary Betsy DeVos in a statement.  

Now, the National Consumer Law Center and other consumer groups have filed a lawsuit against DeVos, claiming that more than 54,000 borrowers continue to have wages garnished, despite the promise from the CARES Act. The number of affected borrowers may be as high as 83,500.

There are 9 million federal student loan borrowers in default, with about 10 to 15% of borrowers defaulting within three years of entering repayment. The U.S. Department of Education can garnish up to 15% of their paycheck to repay the defaulted student loans. Employers deduct the funds from the borrower’s paycheck and send it to the U.S. Department of Education. 

The U.S. Department of Education claims that more than 37,500 employers have not followed the Department’s instructions to suspend wage garnishment. The U.S. Department of Education recently sent them a second notice. 

The U.S. Department of Education says that it will refund the garnished wages to the borrowers. It is unclear whether borrowers have actually received refunds.

Other consequences of being in default include:

• The borrower loses access to deferment and forbearance options.

• Besides wage garnishment, Social Security retirement and disability benefits can also be offset.

• Income tax refunds can be withheld.

• Borrowers can no longer choose their repayment plan.

• Borrowers are no longer eligible for other financial aid

• The borrower’s credit is ruined.

Tip: The ChangEd App could help you pay down your student loans. Your purchases are rounded up, and that money goes towards your loans, both federal and private loans. Family members could even help out by linking their account, too. It’s just one of the ways to get other people to pay your student loans.

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