Complying with student loan wage garnishment orders can be challenging, but employers play an essential role in assisting both student loan borrowers and debt collectors, a federal official said March 11.
Employers need not worry about wage garnishments on federal student loans until October because of the Fresh Start Program, said William Hinkle, a section chief for the Consumer Financial Protection Bureau. The program extended the wage garnishment pause on student loan payments and provides a way for borrowers to get out of default.
“The Fresh Start Program will last until October, and then all regular collections will resume,” he said at PayrollOrg’s Capital Summit. “That means that there will be new orders going out for garnishments. Any prior orders that employers received should be canceled at this point. We should wait and see what the Department of Education says, but collections wouldn’t happen until October.”
Although employers have since stopped wage garnishments in accordance with federal law and guidance, the new challenge is going to be properly restarting wage garnishments, Hinkle added. The Education Department’s Fresh Start Program extended the wage garnishment pause for delinquent borrowers until October 2024, but the department has yet to contract with companies to assist in the debt collection process.
“One of the things that happened over the last few years is that the Department of Education ended all of their contracts with their debt collectors,” he said. “So, right now, we don’t know who is going to be sending you [garnishment] notices.”
If an employee has a nonfederal student loan, employers should beware any court orders for wage garnishment issued in a state other than the one where the employee works, he warned. Certain states prohibit wage garnishments, so some creditors will attempt to bypass the prohibitions by obtaining court orders in another state where the employer is also located.
“It seems to put employers in an awkward situation,” he said. “They have a pretty direct mandate and pretty clear direction from state governments that wages should be garnished, and yet they are getting these orders [from out of state].”
In such instances, employers should advise affected employees to contact their creditors, said Nathan Wilner, a vice president for the National Creditors Bar Association.
“Tell employees to call their creditor or their lawyer,” he recommended. “The biggest problem is that there’s no communication. I understand that people can become deer in the headlights and it’s easier to ignore [the issue], but I have yet to see a situation where you can’t work out a payment arrangement with the creditor. They want voluntary payments; they don’t want to have to go through this process.”
Employers should still obey any court orders, since they can be held in contempt of court and subject to other court actions, Wilner said. However, courts tend to penalize employers only after multiple attempts to contact employers regarding compliance.
If an employee has a federal student loan, the employee will receive an administrative wage garnishment order instead of a court order, Hinkle added. Failure to properly garnish wages may result in employers being liable for the amount that should have been withheld from employees’ pay.
Compliance with garnishment orders is integral to assisting employees with defaulted student loans, many of whom are financially vulnerable, Hinkle said.
“It’s important to consider who this [student loan] population is, and what their experiences have been,” he said. “Once people fall into default, the ways out are complicated, and the consequences are pretty significant, so garnishing people’s wages should not be taken lightly.”
