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AMY GOODMAN: This is Democracy Now!, democracynow.org. I’m Amy Goodman, with Juan González.
As millions across the United States struggle with rising food and living costs, we look now at how the Trump administration plans to resume garnishing the wages of student loan borrowers who haven’t been able to make their payments for at least nine months. An estimated 5 million people are currently in default on their student loans.
The billionaire Education Department Secretary Linda McMahon has confirmed the agency will notify about a thousand student loan borrowers of plans to withhold a portion of their paycheck starting the week of January 7th. The number of notices will then increase every month for the rest of next year. The Trump administration already began withholding tax refunds and Social Security benefits from some student loan borrowers in default, as it also slashed affordable repayment options for millions of people.
We are joined right now by Julia Barnard, the higher education team lead at the Debt Collective, former student loan ombudsman at the Consumer Financial Protection Bureau, joining us from Raleigh, North Carolina.
Thank you so much for being with us, Julia. Can you just start off by explaining what’s going to happen for student loan borrowers in default? How many are there? Their wages are going to be garnished?
JULIA BARNARD: Yes. Thank you for having me.
Like you said, we’ve got around 5 million borrowers currently with federal student loans in default. That number is expected to increase to 10, potentially even as high as 15, million borrowers with loans in that status. Borrowers then become subject to a range of negative consequences, including forced collections, like wage garnishment, tax refund offsets, like you mentioned, including seizure of anti-poverty benefits, like the earned income tax credit, the child tax credit and other refunds, and also negative credit score impacts. So, yes, it’s an extremely negative experience for borrowers who have loans in default.
JUAN GONZÁLEZ: And, Julia, in terms of the growth of student debt, it’s more than tripled between 2007 and ’24, now to about $1.7 trillion. How did the amount continue to escalate, even during the period of this five-year reprieve that existed?
JULIA BARNARD: Yeah, yeah. It’s a complicated question. Student loans have increased. Forty-four million Americans now owe student debt to the federal government. That doesn’t even include students who put tuition on debt products like credit cards or tuition payment plans or other types of debts. Tuition prices, the cost of college, has continued to rise. As we all know, and as you’ve mentioned in the program, costs for medical care, healthcare premiums, housing, child care are going up, so, increasingly, individuals are debt financing education, whereas in the past that used to be a good provided by the government, with the recognition that an educated population makes our nation more competitive and bolsters our democracy.
JUAN GONZÁLEZ: And what’s the latest on the Trump administration’s plans to privatize some of this nearly $2 trillion in federal student loan debt?
JULIA BARNARD: Yeah, I’ve read those news reports, as well. As far as I can tell, that is not going very far. From what I understand, there’s not a lot public about the process. From what I understand and from what I know in my experience, the student loan portfolio is not a very profitable asset. The government is protected from certain consequences, certain legal consequences, that private creditors are not protected from. So, I think it would be a very risky asset for any private entity looking to buy the entire portfolio or a portion of the portfolio. As I understand it, the only profitable parts of the portfolio are kind of parent PLUS loans. There are certain tranches of the portfolio that could make sense. But the Debt Collective, for example, has said publicly that we’d like to put in a bid on the nonperforming parts of the portfolio, for example, like the parts of the portfolio that are in default status.
AMY GOODMAN: Julia, two quick questions: What’s the role of the billionaire Education Secretary Linda McMahon? One of your colleagues, Astra Taylor at Debt Collective, has called the Education Department simply a debt collection agency now. And what options do people have?
JULIA BARNARD: Yeah, thank you for the question. There’s a certain amount of discretion involved. It’s a choice to turn on the debt collection program. It’s a choice to contact employers and have them garnish wages and send them to the Department of Education. We know from our experience trying to turn off the wage garnishment system during the pandemic that two-thirds of people who are experiencing wage garnishment in 2020 had illegal collections after Congress had voted to stop collections on wages. So, it’s a very difficult system to turn on and off, and I think it’s cruel and hostile to working people to turn the system on before we’re sure that we can run it in a compliant manner.
Yeah, so, I think it’s really important for borrowers to know that they’re not alone. Like we’ve talked about, there are millions and millions of borrowers who have loans in default status. We know from the Consumer Financial Protection Bureau, from state attorneys general, from borrowers themselves, that there’s widespread — there are widespread errors that can cause people’s loans to go into default that have nothing to do with their willingness to repay. A lot of borrowers who go into default, kind of intuitively, simply do not have the money to pay their student loans. And so, the government kind of trying to extract water from a stone, I think, is unnecessary. It’s likely to — it’s unlikely to result in benefits to the government, to the taxpayer, and certainly to the borrower themselves.
AMY GOODMAN: And finally —
JULIA BARNARD: So —
AMY GOODMAN: Oh, go ahead.
JULIA BARNARD: Oh, I wanted to talk about borrowers’ options, if that’s all right.
AMY GOODMAN: Yes.
JULIA BARNARD: So, I think it’s really important to say that when a loan goes into default, the servicing arrangement is transferred, and the loan goes into the hands of a debt collector, who may not feel the same responsibility for teaching borrowers about their options.
So, the Department of Education typically leans on options that require repayment, such as rehabilitation and consolidation, for borrowers to get their loans out of default status. However, there are other options, such as cancelation for total and permanent disability discharge. There’s false certification discharge. There is — if a school misled a student or committed fraud, there are other types of discharge, called borrower defense discharge. There are a lot of ways for borrowers to have their loans canceled that do not require repayment, that the government doesn’t necessarily tell borrowers about.
So we encourage borrowers to try to understand their options, come to a Debt Collective event to learn more. You can look at this on the internet, but it’s important to know that you can get your loan out of default status without necessarily having to repay.
And one final option I want everyone to be aware of is that if you’re facing a financial hardship — so, 95% of debtors who have their wages garnished say it causes a major or — major or general financial hardship. If that’s true, people can immediately contest when they get a notice of wage seizure, to say it causes a financial hardship and have that paused. So, it’s really important to open that mail and get in touch to object to the wage garnishment as soon as you get the notice.
AMY GOODMAN: Julia Barnard, I want to thank you for being with us, currently the higher education team lead at the Debt Collective, former student loan ombudsman at the Consumer Financial Protection Bureau.
Next up, starting January 1st, healthcare costs are expected to double or triple for millions of people across the United States. We’ll speak with Elisabeth Benjamin, member of the New York Mayor-elect Zohran Mamdani’s transition team, vice president at Community Service Society. Stay with us.
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AMY GOODMAN: “I Need Money,” here on Democracy Now!, democracynow.org. I’m Amy Goodman, with Juan González.
