Delinquent student loan borrowers could see wage garnishments next month

1:12In this June 24, 2022, file photo, the Department of Education building is depicted in Washington, D.C.STOCK IMAGE/Getty Images

Millions of borrowers of student loans who are significantly behind on their payments will experience wage garnishments starting in January, a representative for the U.S. Department of Education confirmed to ABC News on Tuesday.

This action has been in preparation for several months and coincides with the Trump administration’s ongoing overhaul of the nearly $1.7 trillion student loan system, which affects over 40 million Americans. Approximately 5 million individuals have defaulted on their student loan payments, meaning they have not made any payments for a minimum of nine months or 270 days. Once a loan officially defaults, it becomes subject to mandatory collections.

Collections on loans recommenced in May and are generally conducted via wage garnishments and the offsetting of tax refunds or other federal benefits such as Social Security.

Wage garnishment is a legal process whereby a person’s earnings are mandated by a court order to be withheld by an employer for debt payment, as stated by the Department of Labor. The spokesperson for the Education Department anticipates that the initial wage garnishment notifications will be distributed to around 1,000 defaulted borrowers during the week of January 7, with the number of notices increasing each month.

In this June 24, 2022, file photo, the Department of Education building is depicted in Washington, D.C.STOCK IMAGE/Getty Images

Collections will only take place after student and parent borrowers have been given "adequate notice and opportunity" to repay their loans, according to the department.

Former Under Secretary of Education James Kvaal informed ABC News previously that defaults can be "devastating" for borrowers. Kvaal cautioned that, in some instances, defaults can adversely affect credit scores and future eligibility for student aid.

Student debt advocates emphasize that the impending garnishments will mark the first instance where borrowers have had their wages seized since the COVID-19 pandemic. Persis Yu, deputy executive director and managing counsel of the advocacy group Protect Borrowers, contended that the administration’s choice is harsh on Americans who are already dealing with the so-called "affordability crisis."

"As millions of borrowers teeter on the brink of default, this Administration is utilizing its self-imposed limited resources to confiscate borrowers’ wages instead of advocating for borrowers’ rights to affordable payments," Yu expressed in a statement.

Earlier this month, the Education Department took steps to eliminate the Saving on a Valuable Education (SAVE) plan, one of former President Joe Biden’s most favored student loan forgiveness programs, which over 7 million borrowers have signed up for.

Education Secretary Linda McMahon has emphasized that the Trump administration is working to simplify the "excessively complicated" repayment process and lower borrowing amounts to "assist in mitigating rising tuition costs."

Her department is also seeking to transition the student debt portfolio and possibly transfer it to the Department of Treasury. McMahon has stated that she has discussed the transfer of loans with Treasury Secretary Scott Bessent, but no decisions have yet been reached.

Ellen Keast, press secretary for higher education at the Department of Education, told ABC News, "We are assessing methods to enhance the financial stability of the nearly $1.7 trillion student loan portfolio to protect the interests of both students and taxpayers."

Sourse: abcnews.go.com