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Wage garnishments for student loan debt continued despite payment pause, records show

Student loan wage garnishment system is fundamentally flawed, consumer groups say

In March 2020, the federal government stopped seizing wages, tax refunds and Social Security benefits to recoup student debt from some borrowers. But records show ending the garnishments was not a simple process. (Elise Amendola/AP)
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After months of the Education Department garnishing her paycheck for a past-due student loan in 2019, Natalie Morehead saw a glimmer of hope during the turmoil of the coronavirus pandemic.

In March 2020, at the onset of the health crisis, the government stopped the seizure of wages, tax refunds and Social Security benefits to recoup student debt from borrowers like her. The reprieve was immediate for Morehead, but short-lived.

Six months later, the garnishments briefly began again, taking nearly half of her paycheck for one month. Morehead, who worked at a doctor’s office earning barely minimum wage, said she was left without enough money to cover rent and buy food for her and her three children.

“It was a nightmare, but one that seemed like it was ending, only to restart all over again,” said Morehead, 37, who has struggled to repay $28,000 in debt she acquired for a medical assistant certificate from Chicago Systems Institute in Illinois.

Consumer advocates say Morehead’s experience is emblematic of the Education Department’s unwieldy system for recouping past-due student debt.

Hundreds of thousands of borrowers continued to have their paychecks shorted despite a congressional order, leading some to sue the federal agency to cease collections and refund their money. The lawsuit, and a subsequent inspector general report, detailed challenges the department faced in turning off the system.

But new data shows those problems were far deeper and lasted longer than previously known.

Borrowers sue Education Secretary Betsy DeVos for garnishing wages after Congress ordered halt

A Freedom of Information Act (FOIA) request analyzed by the advocacy group Student Borrower Protection Center revealed the Education Department continued garnishing people’s wages at least through August 2021, 10 months longer than the agency’s inspector general reported. In more than 2,000 pages of internal documents released Thursday, the department shows how difficult it is to manage its own collection system.

“It’s a leaky faucet that they can’t seem to fix,” said Persis Yu, deputy executive director and managing counsel at the Student Borrower Protection Center. “If the department has no real control, then the system should not be turned back on.”

The hold on administrative wage garnishment is set to end as student loan repayments resume next year, but Yu argues the department has a moral obligation not to throw vulnerable borrowers back into a broken collection system.

The Education Department plans to take up debt collection reform as a part of its regulatory agenda next year. In the meantime, the department said Wednesday that its Fresh Start initiative to lift borrowers out of default will eliminate administrative wage garnishment for a period of one year after the return to repayment.

There are multiple steps involved in ending an involuntary collection such as a paycheck garnishment. Employers must be notified by the department to stop withholding money from the borrower’s paycheck. It can then take employers weeks to fully process and cease collection.

The Washington Post previously reported that the Trump administration failed to send formal letters to employers notifying them to end the wage garnishments. The agency initially sent emails, most of which remained unopened. Consumer groups say employers are often reluctant to act without formal notification from the agency because of the threat of penalties.

The department said it struggled to contact many employers, particularly during the early part of the pandemic, when mail pickup at companies was affected and many people — including payroll officers — were working remotely. Department officials point out that its inspector general concluded that the agency “took quick action to implement processes that generally achieved positive results.”

However, documents show department staffers, as well as its contractor, Maximus, resorting to Google to find accurate company addresses in February 2021. Although the strategy yielded some success, it was not enough. At one point that month, a senior official at Maximus told the department that the company had a “plan to call the borrowers … to see if they can get the employers to stop. After that, we will be ready to say we have done what we can.”

By June 2021, Maximus issued a report to the department showing that employers who were still garnishing wages had been contacted as many as 50 or more times by October 2020.

As a part of the class-action case filed in April 2020 to stop the garnishments, the Trump administration had to submit progress reports to the court. Newly released documents show the administration provided misleading information.

While assuring the court that the department only had 509 employers still garnishing wages in October 2020, department staff confirmed in an internal memo that the number was actually twice as high. The department also told the court that it had made successful contact with all employers, but internal documents obtained through the FOIA request show staffers had invalid addresses or only left voice mails in many cases.

“This investigation is a troubling reminder of what we already knew: the predatory debt collection system is out of control,” said Rep. Ayanna Pressley (D-Mass.). “It’s clear that under two Administrations — one with contempt for the people and one with compassion — the agency was unable to rein in these unconscionable and explicitly banned wage garnishments.”

The Education Department also promised to quickly refund any money it received from improper wage garnishments. A separate FOIA request made by the D.C.-based nonprofit National Student Legal Defense Network in August 2021 found that more than 10,000 people were still awaiting refunds more than a year after the suspension order.

The department would not confirm how many people are still in line to receive money or whether garnishments have fully ceased.

Morehead has yet to be refunded the money the Education Department seized from her paycheck. For her, the resumption of collections ended within a month of starting. The Student Borrower Protection Center said it encountered other borrowers like Morehead whose wages were seized in September 2020, one of the many times when the payment pause was slated to end.

Morehead said she has tried to bring her student loan account back into good standing but never received confirmation that her request to rehabilitate her loans was received. She is “dreading” the end of the collections moratorium next year.

“I honestly doubt I’ll ever be able to pay this off,” Morehead said of her balance. “I’ll be working the rest of my life to get rid of this debt.”