Personal Finance

Trump administration is still garnishing wages from student loan borrowers

Key Points
  • During the public health crisis, the U.S. Department of Education said it would stop garnishing the wages of defaulted student loan borrowers. 
  • Yet some borrowers say the practice is still happening.
  • "They thought they were going to have some reprieve and a little more money in their bank account, and it's nearly impossible to get answers about how to get this fixed," said Seth Frotman, former student loan ombudsman at the Consumer Financial Protection Bureau. 
CNBC | Jaden Urbi

On March 25, the Trump administration announced that during the coronavirus pandemic it would stop garnishing the wages of struggling student loan borrowers. 

"These are difficult times for many Americans, and we don't want to do anything that will make it harder for them to make ends meet or create additional stress," said Education Secretary Betsy DeVos in a statement. The historic $2 trillion stimulus package Congress later passed also put a pause on the garnishments

However, nearly a month later, there are still borrowers who say they're not getting their entire paychecks, due to a past-due student loan.

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"We've now heard from dozens of borrowers who continue to see portions of their paychecks taken because they were behind on their student loans," said Seth Frotman, former student loan ombudsman at the Consumer Financial Protection Bureau and the executive director of the Student Borrower Protection Center. 

"They're really struggling under the weight of the economic fallout of the coronavirus pandemic," he added. "They thought they were going to have some reprieve and a little more money in their bank account, and it's nearly impossible to get answers about how to get this fixed."

Dozens of congressional Democrats, led by Rep. Ayanna Pressley, D-Mass., and Sen. Cory Booker, D-N.J., sent DeVos and Treasury Secretary Steven Mnuchin a letter last week expressing concern that the garnishments haven't stopped. 

Outstanding education debt in the U.S. is projected to swell to $2 trillion by 2022, eclipsing credit card and auto debt. Some 9 million people with student debt are in default. The U.S. Department of Education has extraordinary collection powers on federal student loans and can seize borrowers' Social Security checks, tax refunds and up to 15% of their wages.

During the national health crisis, borrowers were supposed to get a break from these offsets, but experts say stopping the garnishment of wages can be particularly challenging because it often requires coordination between the U.S. Department of Education, a debt collector and a company's human resources department. 

It's up to the Education Department to notify a borrower's employer that it should stop the garnishment. 

"There are accounts out of the Department of Education that Betsy DeVos has stalled in their efforts to do what the law says, which is shut off wage garnishments," Frotman said. 

"It just shows we've created this student debt collection monster that simply can't be shut off, even in response to an act by Congress." 

The Education Department did not immediately respond to a request for comment.