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U.S. Department of Education Announces Temporary Halting of Wage Garnishments

Posted on: March 30th, 2020

By: Jeffrey A. Hord

On March 25, 2020, the Department of Education (DOE) announced that it will temporarily halt seizing wages and/or withholding tax refunds from borrowers who have defaulted on their student loans held by the federal government.  As part of the Trump Administration’s multifaceted response to the COVID-19 national emergency, the DOE has suspended any wage garnishments and stopped all requests to the U.S. Treasury Department to withhold money from defaulted borrowers.  The directive is retroactive to March 13, 2020, and will last for a period of at least sixty (60) days.  The DOE also instructed private collection agencies to stop all “proactive collection activities,” including making phone calls to borrowers and issuing collection letters and billing statements.

Employers who are responsible for properly processing wage garnishments should take note of this announcement.  In its official press release, the DOE emphasized that, while borrowers whose paychecks were being garnished will now be entitled to their full wage, it is the responsibility of the employer to make the necessary change to the employee’s paycheck:

“The Department must rely on employers to make the change to borrowers’ paychecks, so it will monitor employers’ compliance with the request to stop wage garnishment. Borrowers whose wages continue to be garnished after March 13 should contact their employers’ human resources department.”

While the directive unambiguously prohibits “new” wage garnishments, Social Security offsets, and collection actions, the DOE’s announcement leaves some room for doubt as to whether garnishments and offsets put into effect prior to March 13, 2020 are similarly impacted.  However, in a contemporaneous set of FAQ published on the DOE’s official Federal Student Aid website, the Department seemed to clearly signal its intent:

If your wages continue to be garnished after the president’s March 13, 2020, announcement, you should contact your employer’s human resources department. If DOE receives funds from your paycheck that should have been stopped as a result of the March 13 announcement, we will refund your garnished wages.

The good news for employers who make payments towards their employees’ outstanding student loans as a benefit of employment is that they can now do so tax-free until January 1, 2021, for up to $5,250 annually.

Additional Information:

The FMG Coronavirus Task Team will be conducting a series of webinars on Coronavirus issues on a regular basis.  On April 2, we will discuss the impact of Coronavirus on law enforcement.  Click here to register.

FMG has formed a Coronavirus Task Force to provide up-to-the-minute information, strategic advice, and practical solutions for our clients. Our group is an interdisciplinary team of attorneys who can address the multitude of legal issues arising out of the Coronavirus pandemic, including issues related to Healthcare, Product Liability, Tort Liability, Data Privacy, and Cyber and Local Governments. For more information about the Task Force, click here.

You can also contact your FMG relationship partner or email the team with any questions at [email protected].

**DISCLAIMER: The attorneys at Freeman Mathis & Gary, LLP (“FMG”) have been working hard to produce educational content to address issues arising from the concern over COVID-19. The webinars and our written material have produced many questions. Some we have been able to answer, but many we cannot without a specific legal engagement. We can only give legal advice to clients. Please be aware that your attendance at one of our webinars or receipt of our written material does not establish an attorney-client relationship between you and FMG. An attorney-client relationship will not exist unless and until an FMG partner expressly and explicitly states IN WRITING that FMG will undertake an attorney-client relationship with you, after ascertaining that the firm does not have any legal conflicts of interest. As a result, you should not transmit any personal or confidential information to FMG unless we have entered into a formal written agreement with you.  We will continue to produce education content for the public, but we must point out that none of our webinars, articles, blog posts, or other similar material constitutes legal advice, does not create an attorney client relationship and you cannot rely on it as such. We hope you will continue to take advantage of the conferences and materials that may pertain to your work or interests.**

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