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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.
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