Wages were seized for student debt despite stop order, report says
Complex system of contractor, agency blamed
After months of the Education Department garnishing her paycheck for a past-due student loan in 2019, Natalie Morehead saw a glimmer of hope during the turmoil of the pandemic.
In March 2020, at the onset of the health crisis, the government stopped the seizure of wages, tax refunds, and Social Security benefits to recoup student debt from borrowers like her. The reprieve was immediate for Morehead, but short-lived.
Six months later, the garnishments briefly began again, taking nearly half of her paycheck for one month. Morehead, who worked at a doctor’s office earning barely minimum wage, said she was left without enough money to cover rent and buy food for her and her three children.
“It was a nightmare, but one that seemed like it was ending, only to restart all over again,’’ said Morehead, 37, who has struggled to repay $28,000 in debt she acquired for a medical assistant certificate from Chicago Systems Institute in Illinois.
Consumer advocates say Morehead’s experience is emblematic of the Education Department’s unwieldy system for recouping past-due student debt.
Hundreds of thousands of borrowers continued to have their paychecks shorted despite a congressional order, leading some to sue the federal agency to cease collections and refund their money. The lawsuit, and a subsequent inspector general report, detailed challenges the department faced in turning off the system.
But new data show those problems were far deeper and lasted longer than previously known.
A Freedom of Information Act (FOIA) request made by the advocacy group Student Borrower Protection Center revealed the Education Department continued garnishing people’s wages at least through August 2021, 10 months longer than the agency’s inspector general reported. In more than 2,000 pages of internal documents, the department shows how difficult it is to manage its own collection system.
“It’s a leaky faucet that they can’t seem to fix,’’ said Persis Yu, deputy executive director and managing counsel at the Student Borrower Protection Center. “If the department has no real control, then the system should not be turned back on.’’
The hold on administrative wage garnishment is set to end as student loan repayments resume next year, but Yu argues the department has a moral obligation not to throw vulnerable borrowers back into a broken collection system.
The Education Department plans to take up debt collection reform as a part of its regulatory agenda next year. In the meantime, the department said Wednesday that its Fresh Start initiative to lift borrowers out of default will eliminate administrative wage garnishment for a period of one year after the return to repayment.
There are multiple steps involved in ending an involuntary collection such as a paycheck garnishment. Employers must be notified by the department to stop withholding money from the borrower’s paycheck. It can then take employers weeks to fully process and cease collection.
The Washington Post previously reported that the Trump administration failed to send formal letters to employers notifying them to end the wage garnishments. The agency initially sent e-mails, most of which remained unopened. Consumer groups say employers are often reluctant to act without formal notification from the agency because of the threat of penalties.
The department said it struggled to get a hold of many employers, particularly during the early part of the pandemic, when mail pickup at companies was affected and many people — including payroll officers — were working remotely. Department officials point out that its inspector general concluded that the agency “took quick action to implement processes that generally achieved positive results.’’
However, documents show department staffers, as well as its contractor Maximus, resorting to Google to find accurate company addresses in February 2021. Although the strategy yielded some success, it was not enough. At one point that month, a senior official at Maximus told the department that the company had a “plan to call the borrowers . . . to see if they can get the employers to stop. After that, we will be ready to say we have done what we can.’’
By June 2021, Maximus issued a report to the department showing that employers who were still garnishing wages had been contacted as many as 50 or more times by October 2020.
As a part of the class-action case filed in April 2020 to stop the garnishments, the Trump administration had to submit progress reports to the court. Newly released documents show the administration provided misleading information.