On June 30, 2023, President Joe Biden joined Education Secretary Miguel Cardona in the Roosevelt Room of the White House in Washington, D.C., to announce new actions to protect borrowers after the Supreme Court struck down his student loan forgiveness plan.
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This year, for the first time in about five years, borrowers who default on their federal student loan debt will face collection campaigns, including Garnish their wages and pension.
In a new U.S. Department of Education memo obtained by CNBC, a senior official laid out for the first time details on when seizures could be reinstated — in some cases, as early as this summer.
The memo, dated just days before the Trump administration took office, details steps the Biden administration is taking to avert a default crisis for federal student loan borrowers. It outlines the department’s strategy to help student loan borrowers stay current as collection efforts resume this year.
“Continuing these initiatives and fully implementing the actions outlined in this memorandum is critical as the Department plans to resume default penalties and mandatory collections later this year,” U.S. Department of Education Deputy Secretary James Kvall wrote in the memo. Letter to Denise Carter, Acting Chief Operating Officer of the Federal Student Aid Administration.
About 7.5 million federal student loan borrowers are in default, The education department stated 2022. 2008 mortgage crisis.
Borrowers could face Social Security offsets through August
In September 2023, the Biden administration offered borrowers a 12-month period after the COVID-19 moratorium on federal student loan payments expired Repayment “entrance”. During this period, they are protected from most consequences of missed payments. The relief period has expired September 30, 2024.
Now, federal student loan borrowers who are in default may have their wages garnished starting this October, according to the Department of Education. Meanwhile, Social Security benefit offsets could resume as soon as August.
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The Department of Education memo directs its federal student aid office to continue the Biden administration’s work to avoid defaults.
This includes making it easier for borrowers to enroll in affordable repayment plans, such as letting borrowers authorize the department to obtain their income information from the IRS and automatically enrolling borrowers in income-driven repayment plans when they are 75 days delinquent on their loans. . (IDR plans determine monthly bills based on the borrower’s discretionary income and family size, with some having monthly bills of $0. Any remaining debt is canceled after a period of time (usually 20 or 25 years).)
Borrowers should also be “screened for other forgiveness opportunities prior to formal default,” the memo said.
The memo also encourages the Department of Education to explore options to increase current interest rate incentives to prompt borrowers to make automatic payments to student loan servicers. As of now, borrowers can typically get a 0.25 percentage point interest rate reduction by doing so.
Defaulting on student loans has fewer consequences
Later this year, borrowers in default will be able to participate for the first time Income-based repayment The plan “has a path to forgiveness,” the memo said. Currently, federal student loan borrowers need to exit default to obtain any income-driven repayment plan, including IBR.
The Biden administration has eliminated most collection fees on federal student loans, according to the memo.
In early 2024, it also took steps to use the department’s collection powers to protect more people’s Social Security benefits. People with monthly Social Security benefits of less than $1,883 can protect those benefits from being offset when the consequences of default resume, up from the current $750 level.
“Available data indicate that these actions will effectively halt Social Security compensation for more than half of the affected borrowers and reduce compensation amounts for many other borrowers,” the memo said.
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