Payroll Briefs

Student Loan Relief Extension and Wage Garnishments: What Employers Need to Know

December 14, 2022

The U.S. Department of Education (DOE) has announced an additional extension of the federal student loan relief. This comes as the federal appeals court blocked the Biden administration from moving ahead with its student debt cancellation program in response to a lawsuit brought by officials in six states. Payments will resume 60 days after litigation over the loan-forgiveness program is resolved or the program is implemented. 

The announcement was welcomed by both students and parents across the country, providing more immediate financial freedom during the current economic climate. Since the relief has been extended, the collection, interest and repayment of any defaulted and federally held loans also remain halted. Naturally, this affects the collection of student loan wage garnishments from employers.

Preparing for the Extension

If you have employees who defaulted on their federally held student loans, you’re familiar with the process of garnishing their wages. However, at the beginning of the COVID-19 crisis, the DOE announced wages would not be garnished as a means of financial relief for borrowers. Employees who had garnishments processed after Mar. 13, 2020, will receive a refund of those garnished wages, and their employer would be notified to stop further collections. To prepare your business for the final extension: 

  • Leverage your payroll software to change the last day of not collecting student loan wages to June 30, 2023.  
  • Classify the wages of each employee whose paycheck you garnish; separate student loan garnishments from other garnishments you’ll still need to collect to ensure these are paid on time. 
  • Keep an open line of communication with employees who have their wages garnished due to a defaulted student loan; they may not be aware of the extension and could find great relief in the extra money. 

Targeted Student Loan Debt Cancellation

In addition to the student loan relief extension, targeted student debt cancellation will be granted to borrowers with loans held by the DOE. The student loan forgiveness program was rolled out in August after more than a year of internal debate. More than 26 million people have applied for the program, with 16 million people approved for loan cancellation at this time. Borrowers with annual income under $125,000 (or $250,000 for married couples or heads of households) who received a Pell Grant are eligible for up to $20,000 in student debt cancellation. Those who qualify for the income standards but did not receive a Pell Grant are eligible for up to $10,000 in relief. The student debt cancellation has been put on hold as legal challenges of the program continue. 

Effectively Manage Garnishments

Handling the student loan wage garnishment changes can be a hassle on top of all the other garnishments you manage. Avoid the consequences of improperly handling garnishments with DM Payroll Solutions’ wage garnishment management tool. Easily prioritize other garnishments to be addressed and paid out first, as well as pause your student loan garnishments until the extension expires on June 30, 2023. To learn more about how our wage garnishment solutions can simplify your process, contact us today.