ED Halts Collections on Defaulted Student Loans Due to COVID-19

By Owen Daughetry & Joelle Fredman, NASFAA Staff Reporters

The Department of Education (ED) officially announced Wednesday it has stopped requests to withhold the wages, tax refunds, and Social Security benefits of borrowers who are in default on their federal student loans for at least the next 60 days as a means of relief during the novel coronavirus outbreak, and has directed private collection agencies to stop pursuing defaulted borrowers.

The policy will retroactively go into effect March 13, 2020 — the day President Donald Trump declared a national emergency in response to the pandemic and said he would waive the interest accrual on federally-held loans. ED wrote Wednesday it will also be refunding approximately $1.8 billion in offsets — federal income tax refunds, Social Security payments, and other federal payments — to more than 830,000 borrowers, which were in the process of being withheld on March 13. ED noted it expected the number of borrowers who will benefit from this relief to increase as loan servicers work to implement the new policy.

"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 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."

While ED must rely on employers to make those changes to borrowers’ paychecks to prevent wage garnishment, it wrote it will be monitoring them to ensure they are complying with the mandate, and directed borrowers whose wages are still being garnished to contact their human resources departments. 

ED added it has also instructed private collection agencies to stop reaching out to borrowers for collection during this time, such as through phone calls and collection letters. 

The announcement comes as congressional leaders early Wednesday morning agreed on a third coronavirus stimulus package to provide economic relief, which is expected to contain similar relief for student loan borrowers.

Student advocates were quick to applaud ED’s efforts.

“Our government taking people’s earned income tax credits to pay student loans is inhumane. We’re glad to see it stop during these difficult times. It should become a permanent policy moving forward,” the Project on Predatory Student Lending wrote on Twitter.

“Thank you to @usedgov for taking this step to protect student borrowers who have defaulted on their loans from garnishments & collections,” the Young Invincibles advocacy group wrote on Twitter. “During the #COVID19 crisis, struggling borrowers need economic support.”

Others, however, expressed the need for longer-term relief for student borrowers. The Institute for College Access & Success (TICAS), for example, wrote on Twitter it urges “Congress to codify this in statute and ensure relief extends beyond 60 days.”   

Stay up to date on the latest developments with the new coronavirus outbreak and its impact on federal student aid by visiting NASFAA’s COVID-19 Web Center.

 

Publication Date: 3/25/2020


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