Will a Title IV Loan Default Be Reinstated If the Borrower Receives a Wage Garnishment Or Tax Offset Refund?

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Scenario: Some of our student loan borrowers who were in default on federally held loans recently had those defaulted loans paid in full by wage garnishment or tax offset. This payment in full by wage or Social Security garnishment, tax offset resolved the default and resulted in reinstatement of Title IV eligibility for these students. Some have come back to school using Title IV aid. Due to COVID-19, if the U.S. Department of Education (ED) receives funds from a garnishment or offset between March 13, 2020 and September 30, 2020, ED will refund the garnished wages or tax offsets.

Answer: Yes. According to guidance NASFAA has received from ED, if a wage or Social Security garnishment or a tax offset payment is refunded to a borrower in this scenario, the borrower’s defaulted loan is reinstated, and the borrower’s Title IV eligibility will again be lost. Should the borrower want to regain eligibility for Title IV aid, the student could either:

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