Exclusive

DeVos halts collection of defaulted federal student loans

The Education Department is putting a stop to collecting on defaulted federal student loans amid the coronavirus pandemic.

Betsy DeVos

The Trump administration has stopped seizing the wages, tax refunds and Social Security benefits of people who are in default on their federal student loans, an administration official confirmed to POLITICO on Tuesday.

The Education Department is putting a stop to collecting on defaulted federal student loans amid the coronavirus pandemic and ordering private collection firms to stop pursuing borrowers “until further notice," according to the official and a memo sent to the companies. The department plans to make the policy retroactive to March 13, the day President Donald Trump declared a national emergency, the official said.

The new executive actions, which the Trump administration is expected to announce this week, provide a reprieve for the more than 9 million federal student loan borrowers who are in default on their debt. Borrowers default on those loans by failing to make a payment for roughly a year.

The decision to halt the debt collection comes as congressional Democrats, labor unions and consumer advocacy groups urged Education Secretary Betsy DeVos to hit pause during the pandemic on the sweeping powers that the federal government has to pursue borrowers.

Department officials have ordered the private companies it hires to collect defaulted loans to immediately stop calling borrowers, sending collection notices or taking steps to seize portions of their paychecks, according to a memo viewed by POLITICO.

“Private Collection Agencies shall cease all Administrative Wage Garnishment efforts,” a department official wrote in the message to the industry last week. The department’s restrictions, which still permit the collection companies to accept incoming calls from borrowers, are to remain in place “until further notice,” the message said.

The Education Department also plans to stop referring defaulted student loan accounts to the Treasury Department, which is responsible for executing the seizure of borrowers’ tax refunds and other federal benefits like Social Security payments.

The executive actions by the Trump administration come as Democrats and Republicans in Congress are fighting over how far the student debt relief provisions of the massive $2 trillion economic rescue package should go.

House Democrats’ massive stimulus proposal released on Monday would have forced the Education Department to suspend involuntary collections on federal student loans. The Senate bill would require the department to halt all monthly payments for six months, though it doesn’t explicitly reference the collection of defaulted loans.

GOP senators have argued that the six-month postponement provides adequate relief to borrowers during the coronavirus emergency, while Democrats are pushing to include at least $10,000 in debt cancellation for each loan borrower.

The Trump administration has already set the interest rates on all federally held student loans at zero percent and created a new forbearance option for any borrower who wants to pause payments for at least two months. Most borrowers have to request that option from their loan servicer, though the Education Department said it was automatically applying the benefit to borrowers who are already more than a month delinquent on their loans.