Were Your Wages Unfairly Garnished during the COVID-related Payment Pause?
The Student Borrower Protection Center, a prominent advocacy group for student borrowers, recently discovered through a Freedom of Information Act (FOIA) request that Between $37- 40 million in wages were garnished months after the government instructed the student-loan industry to pause this activity during the coronavirus pandemic.
he data released to SBPC indicate that despite those instructions, borrowers were subject to wage garnishment and had not received refunds at least through June. And even after Congress paused student-loan payments and collections as part of the CARES Act in March of 2020, thousands of borrowers were still having their wages seized six months later.
‘What you see here is either a willingness to just completely disregard the Department of Education, or you have an industry that is simply unable to comply with the rules.’
— Seth Frotman, the executive director of SBPC
How it Happened
The focus of these documents is the commercially held Family Federal Education Loans. This debt was originally owned by a private lender but was backed by the government. This group of loans were initially excluded from the coronavirus-era pause on payment, interest and collections in the original CARES Act legislation.
In March 2021, the Biden administration announced that borrowers with commercially held FFEL loans who defaulted on their debt were to be included in the Covid 19 payment pause and instructed that any previously seized wages during the pandemic period should be refunded. As of June 2021, the refunded payments have not yet been disbursed.
Borrowers with commercially held FFEL loans are often left out of many of the benefits of the federal student loan program, even though their loans are still federally backed. For instance, they are not eligible for the Public Service Loan Forgiveness, which allows public servants who have made at least 10 year’s worth of payments to have their debt cancelled.
Department of Education officials explained that the issue is caused by the private lender still owning the debt when a borrower with a commercially held FFEL loan is in repayment. A guarantee agency, the middlemen that insure these loans for lenders and collect on them, receives payment from the DOE once a borrower defaults. This structure continued for several decades, but in 2010, the government ended this program and started lending exclusively to borrowers directly.
Borrowers may have had their wages garnished by guarantee agencies as late as July 2020, and the findings of the FOIA indicate that between March 2020 and June 2021, guarantee agencies didn’t refund over $37 million to borrowers that they had already seized.
The scope of the problem is still unclear as there are no precise figures yet regarding the number of borrowers who were garnished without authorization and the amount of total refunds currently issued by the guarantee agencies.
The fact that companies involved in the student-loan industry appear to be treating government’s directions with disregard and, thus far, little consequence illuminates “the discrepancy between the way the student loan system treats student loan companies and the way it treats borrowers — who are subjected to wage garnishments, as well as offsets of their Social Security benefits and tax refunds, when they default on their debt”, Frotman said.
The “system has just become so out of control, so unruly and so unresponsive to just following the law,” Frotman said. “The most vulnerable borrowers in our country are dealing with the fallout.”
If you have experienced wage garnishment following March 2020 and hold commercially held FFEL loans or other Federal loans, we encourage you to contact TitanPrep to inquire about assistance with your student loans repayment program options.