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U.S. Education Department to halt collection of defaulted student loans as coronavirus rocks economy

  • Author: Danielle Douglas-Gabriel, The Washington Post
  • Updated: March 24, 2020
  • Published March 24, 2020

As Americans face the economic fallout of the coronavirus pandemic, the Trump administration plans to halt the seizure of wages, tax refunds and Social Security benefits of people who have defaulted on their federal student loans.

The decision, first reported by Politico, builds on earlier efforts by the Education Department to help borrowers amid waves of layoffs and economic uncertainty. The administration is allowing people to suspend their payments and waiving interest of federal student loans for at least 60 days, but the latest move could be the most consequential for people struggling with debt.

There are more than 9 million Americans who have not made a payment on their federal student loans in nearly a year - defaults that would typically place them at risk of having a portion of their paycheck, Social Security or disability income garnished by the federal government. But the Education Department has directed the private collection agencies it uses to stand down.

In documents obtained by the Washington Post, the department informed the companies that it will "indefinitely suspend" wage and tax refund garnishments. The federal agency will also hold off on transferring new accounts to the private debt collectors and has asked the companies to stop calling borrowers. Collection companies, however, are still allowed to receive calls from people inquiring about their debt.

The Education Department declined to confirm the order. People who were not authorized to speak publicly said the Trump administration will formally announce the move this week.

Consumer groups have spent weeks urging the administration to take more decisive action to help borrowers and pushing liberal lawmakers to do the same. Congressional Democrats have proposed a series of measures to help borrowers, including the suspension of involuntary collections, in the economic relief package, but their efforts have been stymied by partisan fights over a proposal to cancel $10,000 in student debt for each borrower.