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Education Department ordering 37K employers to stop garnishing wages over student loan debt

The agency said it sent letters to nearly 37,500 employers ordering them to stop involuntary collections of student loan debt from workers.

WASHINGTON — The U.S. Education Department says it's ramping up efforts to contact more than 37,000 employers who have improperly continued to garnish wages from workers who have fallen behind on their student loans.

Congress ordered a temporary pause on involuntary collections in March, but the Education Department was sued weeks later in a class action case alleging that the agency failed to notify employers of the change. A court filing on Monday revealed that the department was still garnishing wages from about 54,000 workers as of May 7, and 390,000 were getting wages taken as of March 13.

In a statement, the department says it has notified employers to stop garnishing wages from defaulted student loan borrowers, but some have failed to comply. The agency said it sent letters to nearly 37,500 employers on Monday ordering them to stop, and staff are also calling employers to make sure they received the notice.

The department also sent letters to 83,500 defaulted borrowers over the weekend saying their wages should not be garnished and explaining how they can contact their employers to halt the practice.

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Federal law authorizes the Education Department to garnish up to 15% of workers’ paychecks without a court order if they go into default on federal student loan payments. The agency can issue garnishment orders to employers, and it contracts with private agencies to enforce collection. Last year, the department garnished $842 million from workers, according to federal data.

Congress told the Education Department to halt garnishments through Sept. 30 as part of a coronavirus rescue package that was signed March 27. Education Secretary Betsy DeVos had already called for the measure days earlier and said borrowers would be getting refunds for any wages taken since March 13.

But a class action lawsuit filed on April 30 alleged that thousands of workers were still getting up to 15% of their paychecks held back because the department had failed to notify employers that they must stop withholding pay.

The complaint was filed by consumer and student advocacy groups on behalf of Elizabeth Barber, a New York home health aide, and any other borrowers still facing garnishments. Barber says she makes $13 per hour and has had 12% of her pay held back recently.

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One of the groups behind the suit, Student Defense, said Monday's court filing proves that thousands of workers are still being harmed by the department six weeks after Congress' rescue package took effect.

“For borrowers already worried about affording rent, groceries and medication, losing part of each paycheck to an unlawful garnishment is enough to push them into truly dire circumstances,” said Alex Elson, senior counsel at Student Defense.

The court filing said the department will issue periodic reports on the issue while the case continues.

A group of 42 Democrats in Congress raised concern over the issue in an April 16 letter to DeVos and Treasury Secretary Steven Mnuchin. The letter said borrowers were reporting that employers and collection agencies had failed to implement the suspension weeks after it had been ordered.

Congress ordered the Education Department to pause wage garnishments amid other loan collections as a way to relieve financial pressure on student loan borrowers during the coronavirus pandemic.

The lawsuit asks the court to order that DeVos halt wage garnishment immediately and notify borrowers when it has actually been stopped. It also demands immediate refunds for any pay that has been withheld since March 13, the day President Donald Trump declared a national emergency.

Credit: AP
Education Secretary Betsy DeVos arrives for a House Appropriations subcommittee hearing on budget on Capitol Hill in Washington, Tuesday, March 26, 2019. (AP Photo/Andrew Harnik)