Millions of would-be students turn to the federal government in order finance their education, each taking out thousands of dollars in loans. While that influx of funds allows borrowers to seek a better life by obtaining a degree, it also has to be repaid. And when that becomes impossible for some consumers, debt collectors hired by the Department of Education sometimes resort to garnishing wages. 

According to recently released data from the Department of Education, that strategy paid off in the last three months of 2015, with debt collectors bringing in more than $176 million in garnishments [PDF].

Debt collectors, even those working for the federal government, can only garnish a borrower’s wages after they’ve defaulted on their debt — failed to pay for a certain number of months — and received a court order allowing the deductions.

While the Dept. hasn’t provided much historical data on previous garnishments, it did report the collection of $170 million in garnishments between July and September 2015, MarketWatch reports.

When attempts by servers and collection agencies fail, the government doesn’t simply give up on its owed debt. Instead, the Treasury Department turns to garnishments of Social Security, tax refunds or wages, according to a report last year that looked into the relationship between federal student loans and private debt collectors.

The Treasury said it had net offsets of $2.27 billion for education debts in fiscal 2015.

Still, the $176 million collected at the end of 2015 represents just a drop in the bucket when it comes to private debt collectors recovering money for the Dept.

MarketWatch points out that other methods, such as rehabilitation — a process that allows defaulted borrowers to become current on their student loans after a meeting a certain number of on-time payments — account for more repaid funds.

Rehabilitation programs collected $1.7 billion, while voluntary payments accounted for $82.9 million for the last three months of 2015.

Chris Hicks, an independent researcher who focuses on student debt, tells MarketWatch that the amount of money being taken from borrowers’ paychecks is “horrifying.”

“These are people who can’t afford to pay their student loans and they’ve garnished $176 million in three months from them,” Hicks said. “You have to wonder what conditions people are living in when they’re seeing that much of their wages garnished.”

In addition to reporting on the amount of funds garnished by debt collectors last year, the recently released data also pointed out that more borrowers are going into default than repaying their obligations. In fact, MarketWatch reports the level of defaults is the highest it’s been in three years.

More than 336,000 borrowers entered default last quarter, and more than one million borrowers entered default — defined as 361 days delinquent — for all of 2015, according to the Department’s data [PDF].

Most of these defaulted borrowers aren’t doing so for the first time, either. According to the Dept., 24,500 consumers are defaulting for at least the second time.

The higher default rates and garnishments are in contrast to many of the programs the Department has put in place in recent years to avoid such issues for borrowers.

For example, the income-driven repayment plan, called Revised Pay As You Earn (REPAYE), lets all federal Direct student loan borrowers cap their monthly payments at 10% of their discretionary income, regardless of when they borrowed or their debt-to-income ratio.

Discretionary income is defined as earnings above 150% of the poverty line and applies to what can be put toward non-necessities.

Additionally, the plan provides benefits such as preventing ballooning loan balances by limiting interest accrual for borrowers with low income relative to their debt and removing the “standard payment cap” so higher income borrowers pay the same share of their income as lower-income borrowers.

Hicks suggests that while these programs can be a great resource for borrowers, the high number of new and second defaults shows the Dept. isn’t doing enough to make borrowers aware of their payment options.

“It’s obviously too complex for people to figure out and the servicers aren’t doing a good job of helping people navigate it,” he said.

The government just garnished $176 million in wages because of unpaid student loans [MarketWatch]

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