The U.S. Department of Education announced on March 15, 2024, that it will temporarily suspend all collection efforts, including wage garnishment, for federal student loans. This decision impacts processes like Administrative Wage Garnishment and the Treasury Offset Program, which had recently been reinstated after a hiatus.
According to Nicholas Kent, Under Secretary of Education, the pause aims to ensure that involuntary collection methods are implemented more effectively and equitably once significant reforms to the federal student loan system are enacted. The announcement represents a shift from earlier this month when the department began sending wage garnishment notices to borrowers in default. This initial step could have led to automatic deductions of up to 15% from borrowers’ paychecks.
Approximately 1,000 notices had already been issued to borrowers, a small fraction of the over 5 million individuals currently in default on their federal student loans. The Education Department’s decision to delay these collection efforts is intended to provide more time for the implementation of new repayment rules as outlined in the Working Families Tax Cuts Act.
New Repayment Options and Borrower Support
The recent legislation aims to streamline the federal student loan system by reducing the number of repayment plans available to borrowers. Under the new framework, options will be limited to either a standard repayment plan or an income-driven repayment plan. A new income-driven option is set to launch on July 1, 2026, which will waive unpaid interest for borrowers who consistently make on-time payments that do not fully cover the accrued interest.
Additionally, the Department of Education plans to offer small matching payments in certain instances to aid in reducing overall loan balances. The legislation also provides borrowers a second chance to rehabilitate a defaulted federal student loan, a process that was previously permitted only once.
While the department works to implement these changes, officials have advised borrowers in default to continue engaging with their loan servicers to find resolutions. It is important to note that defaults will still be reported to credit agencies, which may adversely affect borrowers’ credit scores.
This temporary halt in wage garnishment and collections is viewed as a crucial step in addressing the challenges faced by millions of borrowers struggling with student debt. The Education Department aims to create a more equitable system that better serves the needs of all students.
