Trump Admin to Pause Collection of Defaulted Federal Student Loans, Refund $1.8 Billion

March 25, 2020 Updated: March 26, 2020
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Borrowers who fall behind on federal student loan debt payments will receive temporary relief, as the Trump administration is putting a stop to its collection efforts amid the ongoing national emergency.

According to a new directory released on Wednesday, the U.S. Department of Education will stop referring defaulted student loan borrowers to the U.S. Department of Treasury, which has the authority of seizing the borrowers’ federal income tax refunds and Social Security payments, and applying those witholdings toward loan repayments. The pause on collection will last for at least 60 days from March 13, when President Donald Trump declared a national emergency.

For more than 830,000 borrowers whose federal tax refunds were in the process of being seized on March 13, they will receive a refund totalling $1.8 billion.

In addition, private collection agencies working for the federal government have been instructed to pause their “proactive collection activities,” such as making phone calls and sending collection letters to 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 U.S. Secretary of Education Betsy DeVos in a press release. “Americans counting on their tax refund or Social Security check to make ends meet during this national emergency should receive those funds, and our actions today will make sure they do.”

However, the suspension of wage garnishment is not automatic, according to the directive. Employers will need to make the changes to borrowers’ paychecks, and the borrowers should inform their human resources department if their earnings continue to be withheld.

The Trump administration currently allows all borrowers with federal student loans to temporarily stop their regular payments for 60 days, starting March 13. Their interest rates will also be adjusted to zero during that 60-day period.

As for those who decide to keep making their monthly payments in full, the education department will apply those full payments to their principal balance only, once all student loan interest prior to March 13 has been paid.