As we and others have noted several times over the last year, the US government will be garnishing the wages of student loan borrowers in default – with actual garnishment now set to begin in January, CNBC reports.
A spokesperson for the US Department of Education confirmed the plan, which will mark the first time a portion of borrowers’ paychecks have actually been at risk since the beginning of the Covid-19 pandemic, when collection activity was halted.
Starting the week of Jan. 7, the Education Department expects around 1,000 defaulted student loan borrowers to receive notices of administrative wage garnishment, the spokesperson said. After that, the number of notified borrowers will continue to increase. -CNBC
While the US government can seize borrowers’ federal tax refunds, wages, Social Securiity and disability benefits, the Education Department can legally seize up to 15% of a student loan holder’s after-tax income to apply toward their debt.
More than 42 million Americans have student loan debt, which now exceeds $1.6 trillion.
There are currently more than 5 million student loan borrowers in default, a number which could explode to roughly 10 million borrowers soon, the Education Department said in April.
As the WSJ noted in June,
Until past due payments are paid in full or the default status is resolved, borrowers could see up to 15% of their wages automatically deducted from their paychecks.
Borrowers who have been newly reported as delinquent since then on their student loans have seen an average 60-point drop in their credit scores, according to TransUnion. Nine percent of borrowers who fell into delinquency were current on their payments by April, according to TransUnion.
The Education Department has been urging borrowers to resume payments and emphasizing the consequences. Roughly 43 million borrowers owe more than $1.6 trillion in student-loan debt.
More than nine million of them are expected to see their credit scores drop this year, according to data from the New York Fed released in March.