Report: Education Dept. Illegally Took Wages From Student Loan Borrowers

• Wage garnishments are withheld wages from loan borrowers who have defaulted. Garnishment became illegal after the CARES Act of 2020.
• The report claims the Department of Education has lost control over the garnishment collection system, saying it is riddled with invalid addresses and gaps in contact information.
• Borrowers are being harmed by illegal wage withholding and have experienced increased housing, food, and savings insecurities, the report says.
• Garnishments are allowed, but not required, by law.

According to a new report, the U.S. Department of Education (ED) had collected wages from student loan borrowers after it was illegal to do so.

The Student Borrower Protection Center released a report in December alleging that the Department of Education had no way to stop its illegal wage garnishment. ED continued garnishing wages at least 18 months after the CARES Act of 2020 made the practice illegal.

According to the report, when a student loan borrower falls 270 days behind on repaying debt, they enter into default. When borrowers default, they are subject to involuntary payment measures like wage garnishments.

Wage garnishments are pay withholdings from a borrower's employer to pay back a loan. The employer sends these withheld wages to ED.

According to the report, the CARES Act of 2020 determined that borrowers should be free from involuntary student loan payments during the COVID-19 pandemic.

According to the report, the law does not require ED to garnish wages, and the Student Borrower Protection Center recommends that the Department of Education move away from a garnishment system that it cannot control and that only harms borrowers.

"ED has the power to ensure that borrowers are no longer left at the mercy of a system it cannot control," said the report. "Given that ED is not required to use AWG (administrative wage garnishment) at any point, and that it cannot guarantee its command of this dangerous tool, it should immediately terminate its use of AWG as a method of debt collection for as long as it takes to ensure that this collection mechanism can be deployed lawfully — regardless of how long that takes."

How Did This Happen?

The Department of Education works with Maximus Federal Services, a private contractor, to collect wage garnishments. Before the garnishment happens, ED must notify the borrower of the proposed garnishment.

The borrower has 30 days after notification to request a hearing about the garnishment, though this right is seldom used, according to the report. If no hearing is requested, then ED tells the employer to withhold up to 15% of the borrower's wages until the loan is paid off.

The employer then sends the withheld wages to a physical lockbox managed by Maximus and ED.

ED outsources debt collection to Maximus Federal Services, which handles notifying borrowers of wage garnishment and running the servicing platform for wage garnishment.

According to the report, illegal garnishments continued because of poor record-keeping, breakdowns of communication with employers, and ineffective outreach tools. The report breaks down the timeline it says conveys the ineffectiveness of outreach.

ED Continued to Illegally Garnish Wages, Report Says

According to the report, the Office of the Inspector General released a statement in July 2021 that the ED had illegally garnished wages through Oct. 23, 2020. Seven months after it became illegal through the CARES Act to do so.

The National Student Legal Defense Network (Student Defense) further investigated through a Freedom of Information Act (FOIA) request in July to get internal information on wage garnishment.

After failing to release the information after the required 20 business days, Student Defense sued ED to apply pressure. ED released about 2,000 pages of records about wage garnishment during COVID-19 in late 2021.

The Office of the Inspector General initially reported wages were illegally garnished from 392,600 borrowers from March through September 2020. By October 2020, ED was still illegally garnishing wages from 1,930 defaulted borrowers.

Ten months later, ED was still garnishing wages, according to the Student Borrower Protection Center report.

According to the FOIA release, from May 31 to Aug. 27, 2021, ED took $30,000 in wage garnishments from 70 borrowers. The release revealed that ED took more than $87,000 out of borrowers' paychecks after the original report.

A Timeline of ED's Efforts to Stop Illegal Garnishments, according to FOIA Report

Oct. 19, 2020: ED instructs the Department of Treasury to close the physical lockbox for wage garnishments and for it to be closed as long as the student loan payment pause lasts. ED told employers that any payments would be sent back after closure and returned to the employee.

Oct. 28: ED reported to Maximus that 1,700 employers were still garnishing wages from 2,400 federal student loan borrowers.

Nov. 6: A week after the lockbox closed, ED reported to Maximus that employers were still garnishing wages. These checks, filled with the wrong addresses, were sent to a different lockbox for voluntary loan payments.

Dec. 21: Maximus sends a report to ED with three key takeaways:

• As of April 2020, 18,000 employers did not have a valid mailing address. These employers had illegally garnished wages from 47,000 student loan borrowers.
• While ED kept a weekly outreach schedule to employers in the summer and fall of 2020, almost all (69-87%) did not have a valid mailing address.
• Of employers successfully contacted, only 12% of more than 60,000 outreaches from July-October 2020 confirmed they would stop garnishing wages.

According to Exhibit B in the report, ED knew that most letters were sent to invalid addresses; ED labeled the invalid addresses as successful anyway.

Feb. 2, 2021: ED sent a letter to Maximus saying that garnishments continued to come into the voluntary loan payment lockbox. They admitted to knowing that this had occurred since November 2020.

Feb. 12: ED and Maximus wrote in emails that they "literally googled" at least one employer's contact information.

Feb. 17: Maximus emails ED saying: "We have a plan to call the borrowers over the next two week's to see if they can get the employers to stop," said Karen M. Smith, senior director of business and financial operations debt management and collections system. "After that we will be ready to say we have done what we can."

May 13: ED emails the Department of Treasury to temporarily open the garnishments lockbox from May 31 through July 9. So they will see which employers are noncompliant with the CARES Act.

May 31: ED reopens the garnishments lockbox, and data reveals that it took $57,562.05 illegally from borrowers through garnishments. After opening the box, they received garnishments from employers who had confirmed they had stopped.

June 28: Maximus sends ED a report saying that employers still garnishing wages had been contacted 50 or more times by October 2020.

Aug. 25: An ED employee said in an email that it appears borrowers who had been laid off because of COVID-19 and later rehired continued to have their wages garnished.

ED's Internal Records Highlight Inconsistencies in Its Story to the Public

After the CARES Act of 2020 made wage garnishments illegal, Elizabeth Barber filed a lawsuit against ED because the department had failed to stop garnishing her wages two months after the CARES Act.

During the federal lawsuit, ED made several inconsistent statements through the Barber case.

In the Barber case, ED filed a report in October that it had received garnishments from 509 employers. The FOIA reports that internal ED communications said at least 1,000 employers were still garnishing wages on the same day.

Later in the same case, ED reported to the Barber case that it had received garnishments from approximately 2,500 employers in June. At the same time, FOIA revealed that the number was 3,398.

ED also reported to the court that 100% of employers had been contacted but refrained from explaining if contact information was valid.

The report states that FOIA did not reveal whether the discrepancies between representations in court and internal communications were intentional.

ED Could Not Help Student Loan Borrowers Who Reached Out to Them

The FOIA release showed 100 pages of 300 borrower testimonials to ED, citing massive personal and financial hardship.

"I have depleted my 401K savings to provide for my family," said one borrower. "This garnishment is a hardship for my family, even before the pandemic … If the wage garnishment continues at this time I will not be able to support my family."

Some borrowers continued to have garnishments on their wages even after they paid off student loans.

One story involved an ED staff member who told a borrower that the Default Resolution Group, owned by Maximus, could not assist them because it was "not accepting calls due to call volume."

Similarly, another borrower had tried to contact his loan servicer's default department. While they promised to get back to him, they have yet to after two years of him attempting to contact them.

Other testimonials echoed housing insecurity, food insecurity, and disability insecurity. One borrower said she had lost her family home while waiting for ED to refund garnishments it had mistakenly taken.

"These narratives demonstrate how the many failures in the student debt collection system cause extreme hardship to borrowers, which cannot be remedied by a simple refund," said the Student Borrower Protection Center report.

Conclusion

The report recommends that ED remove wage garnishment entirely since it has spun out of control and it does not break any laws to stop the practice.

"Advocates have long contended that the government's system for collecting on defaulted federal student loans is predatory and broken," said the report.

"New evidence examined here lays bare that the administrative wage garnishment system is out of control, leading to immeasurable harm for millions of the most financially vulnerable student loan borrowers. The government does not have to turn this runaway system back on, and it should not do so unless and until it can be sure that AWG can operate within the law."