Education Department Suspends Collection on Late Student Loans Amid Coronavirus Pandemic

Federal student loan borrowers late on their payments have been granted some relief by the Department of Education, which won’t garnish their wages or withhold money from their federal benefits or tax refunds for at least 60 days starting March 13 to alleviate the financial stress caused by the coronavirus pandemic.

The move will provide relief to nine million borrowers in default on their student loans, some of whom may face salary cuts or layoffs due to the economic crisis caused by coronavirus stoppages.

The Education Department has stopped all requests to the U.S. Treasury to withhold defaulters’ federal benefits and garnish their wages. These withholdings, known as “Treasury offsets,” are permitted by federal law and are typically applied toward repayment of defaulted federal student loans.

U.S. Secretary of Education Betsy DeVos also directed the department to refund approximately $1.8 billion in offsets to more than 830,000 borrowers. The refunds represent offsets that were in the process of being withheld on March 13, the date President Trump declared a national emergency and announced emergency executive actions related to COVID-19, the disease caused by the coronavirus. DeVos said the number of borrowers who ultimately benefit could be higher than 830,000 because many offsets are currently in progress.

“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 DeVos in a press 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.”

These new actions complement earlier instituted measures of relief for federal student loan borrowers, kicked off by the Trump administration’s March 13 announcement freezing interest on federal student loans.

A week later on March 20, the education department said federal student loan borrowers will have the option to suspend their loan payments for two months. At the time, DeVos said that during the health emergency, “everyone should be focused on staying safe and healthy, not worrying about their student loan balance growing.”

DeVos said the department directed all federal student loan servicers to grant an administrative forbearance to any borrower with a federally held loan who requests one. The forbearance will be in effect for a period of at least 60 days, beginning March 13. To avail of this, borrowers should contact their loan servicer online or by phone.

“These are anxious times, particularly for students and families whose educations, careers and lives have been disrupted … and I hope it provides meaningful help and peace of mind to those in need,” said DeVos last week.

The education secretary last week also authorized an automatic suspension of payments for any borrower more than 31 days delinquent as of March 13, or who becomes more than 31 days delinquent.

Some consumer advocates and former government officials said the Trump administration’s moves to alleviate the stress on student loan borrowers are inadequate.

Temporarily halting payments isn’t enough, said Persis Yu, director of the Student Loan Borrower Assistance Project at the National Consumer Law Center, to CNBC.

“Pausing payments simply kicks the can down the road. We need to cancel student loan payments and ensure that balances go down so borrowers can make ends meet now and then recover along with the economy,” said Yu to CNBC.

Senate Democrats, meanwhile, are calling for stronger relief measures for student borrowers. Last Thursday, they pitched for “a minimum” of $10,000 in student loan relief for all federal student loan borrowers due to the widespread uncertainty caused by the spread of the coronavirus.  House Democrats went further, calling for $30,000 in student debt cancellation.