July 14, 2021

Warren, Booker, Pressley, Colleagues to Education Department: What Steps Are You Taking to Protect Student Borrowers’ Wages and Benefits When Payments Resume?

“Even before the pandemic, collections on defaulted student loans were catastrophic for borrowers in default, who saw their wages, tax refunds, and even Social Security checks confiscated, in addition to being forced to pay exorbitant fees.”

Text of Letter (pdf) 

Washington, D.C. – United States Senators Elizabeth Warren (D-Mass.), Cory Booker (D-N.J.), Bob Menendez (D-N.J.) Ron Wyden (D-Ore,), Mazie K. Hirono (D-Hawaii.), Brian Schatz (D-Hawaii.) and Jeffrey A. Merkley (D-Ore.), and Representative Ayanna Pressley (D-Mass.) led a letter to Secretary of Education Miguel Cardona requesting information about what actions the Department of Education (ED) plans to take to support student borrowers in default as the scheduled end of paused student loan payments, collections, and interest approaches in October.

“With student loan and interest payments scheduled to resume on October 1, 2021, and a wave of loan delinquencies and defaults likely to follow, we are concerned about the Department resuming these payment collections and are seeking information about how ED plans to avoid long-term financial harm to borrowers,” said Senator Warren.

ED has a number of administrative options to collect the outstanding debt on defaulted student loans. Through wage garnishments, ED is able to collect up to 15% of a borrower’s disposable pay to repay the debt. ED may also refer the loan to the Treasury Department, which is able to withhold a borrower’s tax refunds - including the newly expanded Child Tax Credit (CTC) and Earned Income Tax Credit (EITC), Social Security, or other federal payments - to repay the debt. If a borrower does not enter into a repayment agreement on their defaulted federal student loans, then ED refers these defaulted loans to private collections agencies (PCAs) that charge a collection fee amounting to 17.92% of the outstanding balance, significantly increasing the amount owed.

As of March 2020, when the pandemic and economic downturn were just beginning, about 7.7 million borrowers’ loans were in default. Nearly 45% of borrowers in default reported that they had not found a path to return their loan to good standing. In 2016, the Government Accountability Office (GAO) found that approximately 114,000 borrowers over age 50 had more than $171 million in Social Security benefits withheld because of defaulted student loans. 

Senator Warren and Senator Booker’s bill, the Ending Administrative Wage Garnishment Act, would suspend wage garnishments for those who have defaulted on their student loans during the pandemic and revise income-driven repayment plans.

Although the Coronavirus Aid, Relief, Economic Security Act (CARES Act) established relief for borrowers by suspending payments and halting debt collections on defaulted loans, ED and Treasury still improperly garnished and withheld at least $200 million from approximately 390,000 borrowers during this time. The failure to fully implement the collections moratorium raises concerns about how ED and Treasury will handle the upcoming scheduled resumption of collections and payments on October 1, 2021. 

“As we near the currently scheduled end of the suspension of payments and collections, we are concerned about plunging borrowers back into an untenable financial situation, causing long-term damage to their credit and financial stability and a sudden unnecessary drag on our recovering economy,” continued the lawmakers. 

Senator Warren is one of the nation's leading voices calling for student debt cancellation to boost our economy, help close the racial wealth gap for borrowers, and put an end to predatory practices that harm and trap borrowers in years of debt. 

  • Yesterday, Senators Warren and Edward J. Markey (D-Mass.) sent a letter to President Biden sharing the results of the lawmakers’ inquiry into federal loan servicers’ preparations for the resumption of student loan payments and reiterating the call for President Biden to extend the current pandemic-induced pause on payments and interest until at least March 31, 2022.
  • On June 23, 2021, Senator Warren, Majority Leader Chuck Schumer, Representative Ayanna Pressley (D-Mass.), and Representative Joe Courtney (D-Conn.) led their colleagues in a bicameral letter to President Biden calling on him to extend the pause on federal student loan payments until at least March 31, 2022.
  • In May 2021, Senator Warren led her colleagues in sending a letter requesting information about the steps the Department of Education and the Office of Federal Student Aid (FSA) are taking to help transition millions of federal student loan borrowers back into repayment ahead of the scheduled end for paused student loan payments and interest.
  • Senator Warren has continued her calls for President Biden to use his existing authority to cancel $50,000 in student debt and highlighted data that she obtained from the Education Department revealing the benefit of student debt cancellation.
  • In March 2021, Senators Warren and Bob Menendez (D-N.J.) applauded the passage of their Student Loan Tax Relief Act as part of the American Rescue Plan. The provision makes any student loan forgiveness tax-free, ensuring borrowers whose debt is fully or partially forgiven are not saddled with thousands of dollars in surprise taxes. 
  • She has worked with House Majority Whip James E. Clyburn (D-S.C.) to close the racial wealth gap by introducing legislation, the Student Loan Debt Relief Act, which would cancel student loan debt for 42 million Americans.
  • She prioritized student debt relief and fought to lower student loan interest rates, introducing the Bank on Students Loan Fairness Act as her first bill in Congress.
  • She conducted rigorous oversight of the for-profit college industry and helped secure three-quarters of a billion dollars in debt relief for students who were cheated by predatory for-profit colleges, including 4,500 Massachusetts students and more than 28,000 students across the country.