Federal Pause on Social Security Garnishment for Defaulted Student Loans

In a significant development for borrowers with defaulted federal student loans, the Department of Education has announced a pause on wage garnishment efforts targeting Social Security benefits. This move comes just before the first Social Security payments of June were scheduled to be deposited, providing temporary relief to affected individuals.

Previously, the Department had warned that starting this summer, up to 15% of a borrower's Social Security benefits, paycheck, or tax refund could be withheld to recover defaulted student loans. This garnishment is part of the Treasury Offset Program, a key federal collection tool.

However, experts caution that this pause may be temporary. Mark Kantrowitz, a student loan and financial aid expert, emphasizes that borrowers remain vulnerable to future offsets on Social Security disability and retirement benefits. The Department of Education may resume garnishment efforts as it seeks effective ways to collect on defaulted loans.

What Borrowers Can Do to Avoid Garnishment

Given the likelihood that garnishment could resume, borrowers with defaulted loans should act proactively. Two primary options exist to regain good standing:

• Loan Rehabilitation: Making nine consecutive on-time payments to remove default status.
• Loan Consolidation: Combining loans to qualify for income-driven repayment plans, potentially lowering monthly payments.

Borrowers should contact the Department of Education's Default Resolution Group to explore these options and avoid future garnishment.

This pause on garnishing Social Security benefits may reflect the administration's stance against cutting Social Security, but it doesn't eliminate the risk entirely. Staying informed and taking timely action is crucial for financial stability.