A Monday court filing from the U.S. Education Department says the agency was still garnishing wages from more than 50,000 workers who had fallen behind on their student loans more than a month after Congress ordered an immediate suspension of the practice during the coronavirus pandemic.
The finding, which included the number of garnishments as of last week, was part of a court-ordered update jointly filed by the Education Department and by a home health aide leading a class action lawsuit against the agency. The aide, Elizabeth Barber, says the department has illegally docked her pay multiple times since Congress approved a March 27 rescue package ordering a pause on involuntary collections.
In the filing, the department says it’s “continuing to endeavor to halt all wage garnishments.” It says that, as of May 7, about 54,000 workers were being subject to wage garnishment. On March 13, that figure was approximately 390,000, according to the filing.
The Education Department did not immediately respond to a request for comment. It previously said it was contacting employers by phone, email and letters instructing them to stop docking pay.
Barber filed the suit with support from consumer and student advocacy groups, including Student Defense, a Washington nonprofit. The group said Monday’s filing proves that borrowers are having their wages illegally seized six weeks after Congress’ package took effect.
“For borrowers already worried about affording rent, groceries, and medication, losing part of each paycheck to an unlawful garnishment is enough to push them into truly dire circumstances,” said Alex Elson, senior counsel at Student Defense.
The filing says the department will issue periodic reports on the issue while the case continues.
The lawsuit, filed April 30 in federal court, alleged that thousands of workers were getting up to 15% of their paychecks held back because the Education Department had failed to notify employers that they must stop withholding pay.
The complaint cited department estimates saying 285,000 people had their wages garnished between March 13 and March 26.
Federal law authorizes the Education Department to garnish up to 15% of workers’ paychecks without a court order if they go into default on federal student loan payments. The agency can issue garnishment orders to employers and contracts with private agencies to enforce collection. Last year, the department garnished $842 million from workers, according to federal data.
Education Secretary Betsy DeVos previously told federal student loan borrowers that garnishments would be halted through Sept. 30, with no action needed on their part. On March 25, DeVos said collections were being paused and workers would be refunded for any wage garnishments taken since March 13.
But Democrats and student advocates say the department has been slow to enact the change.
A group of 42 Democrats in Congress raised concern over the issue in an April 16 letter to DeVos and Treasury Secretary Steven Mnuchin. The letter said borrowers were reporting that employers and collection agencies had failed to implement the suspension weeks after it had been ordered.
Congress ordered the Education Department to pause wage garnishments amid other measures meant to relieve financial pressure on student loan borrowers.
The lawsuit asks the court to order that DeVos halt wage garnishment immediately and notify borrowers when it has actually been stopped. It also demands immediate refunds for any pay that has been withheld since March 13, the day President Donald Trump declared a national emergency.
Treasury To Borrow $3 Trillion in Q2, Nearly Quintuple Previous Record
The Treasury Department announced it plans to borrow $3 trillion in the second quarter. They plan to use this to help pay for the various stimulus packages that have been enacted. The said packages aim to fight the economic fallout from the coronavirus pandemic.
That’s more than double what the Treasury borrowed in all of 2019. It is also five times larger than the previous single-quarter record. The year 2008 saw this record set in the depths of the financial crisis.
The Treasury also announced it will borrow $677 billion in Q3, bringing the full fiscal year total borrowing to an estimated $4.5 trillion. For comparison, it borrowed $477 billion in Q1 2020.
However, with the widespread expectations of additional stimulus or aid packages to fight the economic downturn, this amount will very likely balloon to even greater amounts in the coming months.
Borrowing Cash for Stimulus
Nancy Vanden Houten, an economist at Oxford Economics, said Monday, “Borrowing needs are skyrocketing as Treasury needs cash to fund stimulus measures and to compensate for a plunge in revenues caused by massive job losses.”
“Even before the pandemic there was going to be some increased funding needs going forward. But now all things are out the window,” said Mike Lorizio, senior fixed income trader at Manulife Investment Management.
The Treasury’s official statement reads: “The increase in privately-held net marketable borrowing is primarily driven by the impact of the COVID-19 outbreak, including expenditures from new legislation to assist individuals and businesses, changes to tax receipts including the deferral of individual and business taxes from April – June until July, and an increase in the assumed end-of-June Treasury cash balance.”
The Treasury is also acting as a backstop for the Federal Reserve. They issued guarantees for programs that are providing another $2.2 trillion in funding to businesses and households.
The offshoot of these aid packages is a stunning increase in our national debt. This increase happened in a very short period of time.
Increase in National Debt
Since March 1, the national debt has grown by $1.5 trillion to $24.9 trillion, a 6.4% increase. The budget deficit through the first six months of the fiscal year that ended in March was $744 billion. It is easily on pace to be the biggest deficit in U.S. history.
In mid-April the Committee for a Responsible Federal Budget projected that the budget shortfall will nearly quadruple to $3.8 trillion from $984 billion this year. The group added that the only other period in US history with a similar deficit-to-GDP ratio was while our country was heavily involved in World War II.
Fortunately for Treasury, it’s cheap to borrow money right now. Interest rates are effectively zero and will likely remain so for quite some time. It will continue as the economy tries to rebound from economic and job losses brought on by the coronavirus.
If and when rates move higher, it will become increasingly difficult to afford the interest payments on the debt. It will be even harder to find enough revenue to pay down the debt.
A report from Jefferies said, “At this point, Treasury needs to find every available avenue to raise as much cash as efficiently as possible.”
Marcus Receives $91M Bank Loan After Federal Cash
Milwaukee-based hotel and theater operator Marcus Corp. has received a new $91 million bank loan to help it deal with the economic effects of the COVID-19 pandemic.
That Thursday announcement raises questions about whether the company, with annual revenue of over $800 million, should return federal cash designed mainly to help small businesses cope with the pandemic.
Meanwhile, Marcus Corp., along with other larger, publicly traded companies, will undergo a federal review over the $11 million in forgivable loans it obtained through the federal Paycheck Protection Program.
The new bank loan is being provided through an existing agreement with several lenders, including JPMorgan Chase Bank, N.A., as administrative agent, and U.S. Bank National Association as syndication agent.
It provides a $90.8 million 364-day loan “to further solidify The Marcus Corporation’s already strong balance sheet,” a company statement said.
The company will use the cash to repay loans under its existing $225 million revolving credit agreement, to pay costs related to the new loan, and for general corporate purposes.
Conditions include a suspension of quarterly dividends for the rest of 2020, and limits on dividends during the first half of 2021.
Marcus Corp. has been particularly hard hit by the social distancing response to the pandemic.
Its Marcus Theatres Corp. division in March closed all 91 cinemas, with 1,106 screens, in Wisconsin and 16 other states.
The company’s Marcus Hotels & Resorts Inc. division owns or manages 20 hotels, totaling 5,400 rooms, in Wisconsin and seven other states.
It closed the hotels in March and April.
Still, Marcus Corp. has long maintained a strong balance sheet which “has enabled us to weather numerous storms in the past and has positioned us well to weather the current crisis,” Greg Marcus, president and chief executive officer, said in a statement.
As of March 26, the company had a cash balance of $126.5 million, which reflects the borrowing of $220 million of its $225 million revolving credit arrangement.
Even if it faced the “very unlikely scenario” of keeping its theaters and hotels closed for the rest of 2020, Marcus said, the company has enough cash to operate without the new loan.
“With today’s announcement, we have provided for an additional ‘insurance policy’ to further enhance our liquidity, which we believe positions The Marcus Corporation to weather this current storm well into 2021, if needed,” he said.
Also, the company has the benefit of not only owning its hotels, but also the majority of its theaters “thereby reducing our monthly fixed lease payments,” Marcus said.
The company statement outlined other steps it has taken, including the use of benefits provided by the federal response to the pandemic’s economic turmoil.
The Journal Sentinel on Monday reported that Marcus Hotels received Paycheck Protection Program forgivable loans for nine properties. Those include three upscale downtown Milwaukee hotels: the Hilton Milwaukee City Center, Pfister Hotel and Saint Kate – The Arts Hotel.
That federal cash, totaling $11 million, is being used to keep 1,400 to 1,500 employees on the company’s payroll, Greg Marcus said.
The program was meant to mainly help small businesses. But it included a provision allowing larger hotel and restaurant chains to seek loans for individual locations.
That exception allows a company like Marcus Corp., which had around 10,500 employees at the end of 2019, to obtain help.
But larger companies have faced criticism for taking those loans – especially since the program quickly ran out of its first round of $349 billion. Congress and President Donald Trump last week approved $310 billion in additional funds.
The U.S. Small Business Administration also issued a new advisory saying the money should be returned by May 7 unless a company can prove it was truly eligible for a loan.
That process includes exploring private financing sources before turning to PPP.
Treasury Secretary Steve Mnuchin said Tuesday that federal loans exceeding $2 million would get a “full review.”
Mnuchin said it was “inappropriate” for corporations such as restaurant chains Shake Shack and Ruth’s Chris Steak House, and sports franchises like the NBA’s Los Angeles Lakers, to receive PPP cash.
Shake Shack, Ruth’s Chris and the Lakers have returned the loans. Other larger companies have said they will be keeping the cash.
There was no immediate response Thursday from Marcus Corp. when asked if the company would be returning the PPP loans.
Greg Marcus on Monday told the Journal Sentinel that company wouldn’t be able to provide paychecks to its hotel and restaurant employees without the federal help.
The PPP loans are forgivable if at least 75% of the money is spent on keeping or rehiring employees. The rest must be spent on business-related expenses such as rent or utilities.
Marcus said 90% of the loan proceeds are being spent on employee compensation.
Paychecks provided through PPP cover up to eight weeks.
USA Today contributed to this report.
Congress Adds $310B for PPP Small Business Loans
Congress has approved $310 billion in additional funding for an emergency small business loan program aimed at helping employers such as law firms avoid layoffs during the downturn in the economy caused by the COVID-19 crisis.
On April 23, the House voted 388-5 to approve the Paycheck Protection Program and Health Care Enhancement Act. The Senate had approved the measure April 21. President Donald J. Trump is expected to sign the bill into law quickly.
U.S. Treasury Secretary Steven T. Mnuchin welcomed the new funding.
“The PPP, implemented by our partners at the Small Business Administration, has provided assistance to more than 1 million small businesses with fewer than 10 workers,” Mnuchin said in a statement. “The Program is already helping more than 30 million Americans, and with this additional funding, we expect tens of millions more will be able to receive critical relief.”
The PPP program has become the target of increasing criticism after the U.S. Small Business Administration on April 16 announced that the $349 billion originally authorized by Congress had been exhausted and the agency would no longer be accepting PPP loan applications.
Critics contend that many cash-strapped small businesses were denied loans as well-heeled businesses acted quickly to apply for loans in the “first come, first serve” program. Others claim that certain lenders favored wealthier clients in processing PPP loan applications in the rush to obtain loans before funding dried up.
Experts have been recommending that law firms, like other small businesses, should seriously consider applying for the relief under the program in light of its historically favorable loan terms.
However, banking industry groups are warning that much, if not all, of the new money authorized by Congress will be eaten up by PPP loan applications already in process.
The Paycheck Protection Program was created under the federal Coronavirus Aid, Relief, and Economic Security Act signed into law on March 27. Launched on April 3, the SBA program provides small business job-retention loans to pay for eight weeks of payroll expenses and certain overhead to keep workers employed.
Section 1102 of the CARES Act permits the SBA to guarantee 100 percent of loans under the program. Section 1106 of the act provides for forgiveness of up to the full principal amount of those loans.
Generally, small businesses with fewer than 500 employees are eligible for PPP loans. Qualifying nonprofits, sole proprietorships, self-employed individuals, and independent contractors can apply for loans.
The maximum loan amount is $10 million, with a fixed 1 percent interest rate and maturity of two years. The loans do not require collateral or personal guarantees, and the first payment is deferred for six months during which no interest accrues.
Under an interim SBA rule, the loan amount is generally calculated by multiplying the applicant’s average monthly payroll for 2019 by 2.5. The average monthly payroll calculation excludes an employee’s annual salary in excess of $100,000 and includes commissions, tips and benefits such as sick leave and health insurance.
The SBA forgives that portion of a loan used for payroll costs and other designated operating expenses for up to eight weeks from the date the loan is disbursed but only if at least 75 percent of loan proceeds are used for payroll costs. Other expenses eligible for forgiveness include mortgage interest, rent payments and utilities, but payment of those non-payroll costs may constitute no more than 25 percent of the eligible loan forgiveness amount.
Copyright © 2020 BridgeTower Media. All Rights Reserved.
Investing8 months ago
How To Invest In Drones
News6 years ago
The Federal Reserve Is A Ticking Time Bomb
News6 years ago
How to Invest in Graphene
News6 years ago
How To Invest Money in Oil and Gas Today
Business10 months ago
Why is Small Business in America Dying?
Dividend Stocks8 months ago
Mcdonalds the Worst Slump in a Decade
News6 years ago
3 Reasons to Invest in the Russian Stock Market Right Now
Commodities8 months ago
Latest Update On Oil – Expected to Settle Between $45 and…