The Education Department is resuming 15% wage garnishment of student loans borrowers paychecks for … More
Education Department To Resume 15% Wage Garnishment For Student Loan Borrowers In Default
Federal student loan borrowers who have defaulted on their loans face harsh consequences. The U.S. Department of Education announced that it will resume involuntary debt collection on defaulted federal student loans starting May 5, 2025. This means the government will restart the Treasury Offset Program, allowing it to seize tax refunds and reduce Social Security benefits for those who owe defaulted student debt. Perhaps most alarmingly for workers, wage garnishment will also kick back in later this summer after required warning notices are sent. In short, after a three-year freeze on collections due to pandemic relief measures, the gloves are coming off. Simply put, wage garnishment is back for student loan borrowers in default, and those who don’t take action could see it wreak havoc on their finances.
This return to aggressive collections is a significant shift. Since March 2020, defaulted borrowers have been spared from these penalties as part of pandemic relief. Even when payments restarted in late 2023, the Department offered a temporary on-ramp period during which missed payments wouldn’t immediately trigger defaults or collections. That safety net has now expired. The new guidance clarifies that standard collection tactics, including wage garnishments, tax refund interceptions, and Social Security offsets, will now be enforced to recover unpaid student loans. Borrowers who have fallen behind can no longer assume immunity from consequences. The Department believes that resuming collections “protects taxpayers” from footing the bill for unpaid loans.
How Wage Garnishment Works And Why It Hurts Student Loan Borrowers
Wage garnishment is one of the government’s most powerful tools to collect defaulted student debt, and, notably, it doesn’t require a court order. By law, the Education Department can take up to 15% of a defaulted borrower’s disposable pay straight from their paycheck. Disposable pay generally means your take-home pay after mandatory deductions. For example, if you bring home $500 a week, about $75 could be taken out of each paycheck and applied toward your student loan debt without you ever seeing it. Importantly, this administrative garnishment can continue until the defaulted loan is paid off or removed from default. (At least there’s one protection: federal law prohibits your employer from firing you over a student loan garnishment, so your job is safe – but your budget will still feel the pinch .)
Wage garnishment isn’t the only pain point. The government can intercept federal payments typically coming to you through the Treasury Offset Program. This includes federal tax refunds, even notable credits like the Earned Income Tax Credit, often critical for low-income families. Seniors are not off the hook either: if you default on federal student loans, the government can withhold a portion of your Social Security benefits (above a certain exempt amount) to recoup the debt. In practical terms, a defaulted borrower might suddenly find their IRS refund check has vanished or their Social Security retirement check docked. These measures can take a real bite out of the finances of borrowers, many of whom are already struggling.
Millions of Defaulted Student Loan Borrowers At Risk
The student loan borrowers in the crosshairs are those in default on federal student loans, meaning they’ve gone 270+ days without making a payment on a required loan. How many people are we talking about? According to the Education Department’s data, over 5 million borrowers are currently in default. And that number may balloon soon: an additional 4 million are severely delinquent (behind by 3–6 months) and could tip into default in the coming months. The Department warns there could be “almost 10 million borrowers in default in a few months,” about 25% of all student loan borrowers. In other words, roughly one in four student loan borrowers might soon face these collection actions if they don’t get out of default.
Research shows they are often the most financially vulnerable. A 2019 study by The Institute for College Access & Success finds that 65% of defaulted student loan borrowers have incomes below 200% of the federal poverty line. Many defaulted borrowers are first-generation college students, people who didn’t complete their degrees, single parents, or those who attended low-quality for-profit schools. “Borrowers who default are largely the same students who entered college with disproportionate barriers to success,” observes Lindsay Ahlman, a senior policy analyst at TICAS. “The fact that vulnerable students go on to face a higher risk of default compounds the inequities in our system.” In short, the people about to have their wages garnished or their tax refunds seized are often those who can least afford it. Losing 15% of a paycheck or a lump-sum tax refund can be a massive setback for a family living paycheck to paycheck.
TICAS and other borrower advocates worry that aggressive collections will push these borrowers deeper into hardship. Defaulted borrowers already see credit score damage that can make it harder to rent an apartment or get a job, and now they’ll be hit with involuntary payment grabs that further squeeze their finances. There is also concern that not all borrowers know their rights or the options available to help them. And with recent reports of staffing cuts at the Department of Education’s loan servicing operations, accessing help might become more difficult when borrowers need it most. All this creates a sense of urgency: if you’re in default, now is the time to understand your options and avoid these punitive measures.
The Broader Student Loan Borrower Landscape:
The resumption of wage garnishment and other collections is part of the broader transition back into repayment for America’s $1.6 trillion in student loans. The payment pause and collections halt in March 2020 provided unprecedented relief to borrowers. Still, they also led to unusual situations: millions of people remained officially in default during the pause but faced no consequences. Now, the system is normalizing again. Borrowers are expected to pay; if they don’t, the traditional penalties are coming back online. This collections cliff arrives after a period when defaulted borrowers might have grown accustomed to leniency so that the shock could be substantial.
We’re already seeing signs of stress. Student loan delinquency rates spiked once monthly payments resumed – one analysis found roughly 9 million borrowers fell behind on their debt within months of payments restarting. That delinquency surge foreshadows a potential wave of new defaults in 2024 and 2025. The Education Department, under new leadership, appears intent on cracking down. “American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies,” Education Secretary Linda McMahon said in the Department of Education announcement, criticizing the previous leniency and asserting a return to “commonsense and fairness,” which, in practice, means enforcing repayment and ruling out any mass loan forgiveness.