Student-loan agencies illegally seized $37 million from borrowers' wages during the pandemic

• The CARES Act prohibited wage garnishment for student-loan borrowers during the pandemic.
• The Student Borrower Protection Center found companies still illegally seized $37 million in wages.
• Many of those borrowers have yet to receive refunds as the end of the payment pause looms.

President Donald Trump's March 2020 CARES Act prohibited wage garnishment, or withholding wages until a debt is paid off, for certain student-loan borrowers during the pandemic. But new data revealed that some student-loan agencies continued to seize wages - even after the Education Department directed them to stop.

The nonprofit Student Borrower Protection Center (SBPC) released data on Thursday that found student-loan companies, called guaranty agencies, either "refused or failed" to implement the pandemic borrower protections, resulting in over $37 million in garnished wages that have yet to be refunded to borrowers.

Guaranty agencies oversee the Federal Family Education Loan (FFEL) program, which hold private student loans and were not originally included in the pandemic pause on student-loan payments. But in March, Biden expanded the scope of the pause to apply to FFEL loans, but even so, data from the Education Department, obtained via the Freedom of Information Act, found the agencies were still seizing those borrowers' wages despite them being eligible for the payment pause.

"What you see here is either a willingness to just completely disregard the Department of Education, or you have an industry that is simply unable to comply with the rules," Seth Frotman, the executive director of SBPC, told MarketWatch.

-Student Borrower Protection Center (@theSBPC) September 2, 2021

Insider reported on August 24 that the Education Department still can't find 11,000 borrowers who had their wages garnished during the pandemic due to invalid addresses, according to data obtained by Student Defense - the organization that sued Education Secretary Betsy DeVos in 2020 for violating the CARES Act and being slow to stop wage garnishment.

Given that the freeze on student-loan payments is set to lift in February and borrowers have still not gotten refunds from illegal wage seizures, advocates and lawmakers say borrowers need more time to financially prepare.

"The Department of Education illegally took this money from student loan borrowers, and it's their responsibility to figure out how to return it," Dan Zibel, chief counsel and co-founder of Student Defense, previously told Insider. "In the meantime, this shows that the Department has no business restarting administrative wage garnishment anytime soon."

And in July, Insider reported that 23 Democrats were worried about "plunging" borrowers back into repayment without a long-term plan for protecting their wages and credit scores.

They wrote in a letter to Education Secretary Miguel Cardona that although the CARES Act initially paused student-loan payments during the pandemic, the Education Department and Treasury Department still "improperly garnished and withheld" over $200 million from about 390,000 borrowers during this time.

"Even before the coronavirus disease 2019 (COVID-19) pandemic, collections on defaulted student loans were catastrophic for borrowers in default, who saw their wages, tax refunds, and even Social Security checks confiscated, in addition to being forced to pay exorbitant fees," the Democrats wrote.

The Education Department did not respond to Insider's request for comment.