Garnishments of federally held student loans were put on hold until Sept. 30, 2020, under the recently signed CARES Act, but clarification of some of the details can help employers during the temporary suspension.
Some terms of the garnishment suspension may confuse employers as the Education Department refines details of the program authorized by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was signed March 27 by President Donald Trump.
Employers face the challenge of identifying student-loan wage garnishments that qualify for suspension and identifying how a directive from the Education Department relates to the student-loan garnishment terms.
Following is guidance, based on questions and answers compiled by Bloomberg Tax about the garnishment-suspension program:
The student-loan wage-garnishment temporary suspension, as addressed in Section 3513(e) of the CARES Act, applies to certain federal student loans that are owned and held by the federal government and government agencies, such as Direct Loans and Federal Family Education Loans that are owned by the Education Department.
Perkins Loans held by an educational institution and commercially held Federal Family Education Loans do not qualify for suspended payments. Nonfederal student loans owned by private entities, banks, credit unions, and schools also do not qualify.
Payroll departments process many types of garnishments, including those for federally-held and commercially-held student loan wage garnishment, and whether a student-loan wage garnishment is federally held or commercially held may not always be immediately clear, causing confusion about the garnishment’s status. By April 10, such uncertainty should be resolved.
The Education Department, generally through its federal student loan servicers, must issue a notice to those for whom a federally-held student-loan wage garnishment has been automatically and temporarily suspended. The notice is to be sent within 15 days of the CARES Act’s March 27 enactment, under the measure’s Section 3513(g).
The notice is not required for the suspension to take place. Rather, it is an additional requirement that advises of and helps to facilitate the wage garnishment’s temporary suspension, according to the CARES Act’s Section 3513(g) provision. It also is to include the option to continue with a wage garnishment.
The notice should help payroll officers distinguish which of the student-loan wage garnishments that they process are temporarily suspended, an Education Department spokesman said March 31. The notice also serves as an official reference for them to keep on file, the spokesman said.
The notice offers the written guidance that employers need, the spokesman said.
Generally, the Education Department’s default loan servicer is the entity that is notifying employers of the suspensions, not private collection agencies, the Education Department spokesman said April 2 in a follow-up email to Bloomberg Tax.
The temporary suspension is to last until Sept. 30; however, starting Aug. 1, lenders must notify borrowers with at least six notices, by U.S. mail, telephone, or electronically, indicating when their student loan payments would restart.
As a separate matter, some guarantee agencies with commercially held loans may decide to extend some relief to borrowers, but employers would need to get guidance from those agencies, the spokesman said.
The CARES Act (Pub. L. 116-136) takes precedence over the Education Department’s informal directive, issued March 13, 2020, that also called for the suspension of federal student loan wage garnishments, but for a shorter time period.
The Education Department has updated information available for borrowers and students at http://studentaid.gov/coronavirus and https://studentaid.gov/announcements-events/coronavirus#borrower-questions
Recent guidance posted at an Education Department webpage, Coronavirus and Forbearance Info for Students, Borrowers, and Parents, includes a note that any amounts that are garnished for qualifying federally held student loans from March 13, 2020, to Sept. 30, 2020, would be refunded.