Student Loan Wage Garnishment Returns: What Borrowers Must Know Now

The Reinstatement of Collection Actions and What It Means for You

The Trump administration has reactivated involuntary debt collection procedures, meaning federal student loan borrowers in default now face the prospect of wage garnishment once more. Starting this month, the government can legally seize up to 15% of a borrower’s disposable income directly from paychecks—but only if the loans are in true default status, defined as payments overdue by 270 days or more.

Current figures paint a concerning picture: approximately 5.5 million borrowers already carry defaulted federal student loans, with many having fallen behind during or before the pandemic. An additional 6 million borrowers are currently delinquent and face significant default risk, according to the American Enterprise Institute. Betsy Mayotte, director of The Institute of Student Loan Advisors, warns that the nation could witness unprecedented default rates as collection pressures mount.

The timing is critical for millions who enrolled in the Saving on a Valuable Education (SAVE) repayment plan. The Biden administration had placed nearly 7 million borrowers into this program with administrative forbearance status—meaning payments were suspended as of July 2024. However, following legal challenges from Republican-led states, the SAVE plan was terminated in December. This leaves affected borrowers scrambling to transition to alternative federal repayment options, many of which will demand substantially higher monthly payments.

How Wage Garnishment Actually Works

Understanding the mechanics of wage garnishment is essential for anyone receiving a default notice. When loans enter default status, they transfer from your loan servicer to the Education Department’s Default Resolution Group. You’ll receive written notice at your last recorded address indicating that garnishment will begin in 65 days unless you take action.

Your employer, not a private collector, handles the deduction. They withhold the government-specified amount from each paycheck and forward it directly to federal authorities, as detailed by the Office of Federal Student Aid. A crucial protection exists: the government must ensure you retain at least 30 times the federal minimum wage weekly—currently $217.50—meaning garnishment cannot legally exceed 15% of your disposable income after taxes.

Mark Kantrowitz, a financial aid expert, emphasizes this distinction: disposable income is calculated differently than adjusted gross income, often resulting in lower garnishment amounts than borrowers expect.

Additional Collection Arsenal Beyond Wage Garnishment

The government employs multiple recovery strategies for defaulted federal student loans:

• Tax refund interception: Your federal income tax refunds can be seized entirely to satisfy outstanding balances
• Benefit withholding: If you receive Social Security disability or retirement benefits, up to 15% may be withheld, though at least $750 monthly must remain accessible
• Credit damage: Default status creates severe credit report consequences, with negative marks lasting up to seven years and making it difficult to qualify for credit cards, auto loans, or mortgages

Collection costs also escalate significantly: defaulted loans incur collection fees reaching 24% of the outstanding balance. Successfully rehabilitating a loan reduces this to 15%, while consolidation lowers it to 18%.

Three Viable Paths Out of Default

If you’ve received a garnishment notice, your options, though limited, do exist:

Full repayment: Simply paying off the entire outstanding balance eliminates default immediately.

Federal consolidation: Consolidating into a Direct Consolidation Loan removes default status and reduces associated collection fees to 18%.

Loan rehabilitation: This involves making nine consecutive, timely, affordable payments based on your current income level. Successfully completing rehabilitation erases the default status and reduces collection costs to 15%.

You may also request a hearing to contest the default if garnishment would create severe financial hardship or if you’ve been employed less than a year following involuntary job loss.

Prevention: The Smarter Strategy

Avoiding default altogether is significantly preferable to managing its consequences. If you’re struggling with payments, contact your loan servicer immediately rather than waiting for garnishment notices.

Income-driven repayment (IDR) plans offer a compelling alternative. Kantrowitz notes that these typically cap payments at 10% or 15% of your discretionary income—defined as adjusted gross income minus 150% of the poverty line. Since AGI is often substantially lower than disposable income, IDR plans frequently result in manageable monthly payments.

Critically, the Education Department has lost contact with over half of all federal student loan borrowers due to outdated contact information. Many may unknowingly be in default. Update your address and contact details immediately through studentaid.gov and with your loan servicer to ensure you receive official notices.

For those currently enrolled in the SAVE plan seeking alternatives or borrowers evaluating different repayment structures, the Federal Student Aid office provides a Loan Simulator tool that estimates your payments under various plan options, helping you make informed decisions before defaults occur.