For millions of Americans with federal student loans in default, the years-long reprieve from collections is coming to an end. Federal officials have confirmed that wage garnishment and tax refund offsets—two of the government's most powerful collection tools—will resume in early 2026.
The announcement marks the end of pandemic-era protections that began in March 2020 and were repeatedly extended through various administrative actions. For borrowers who have been in default without facing immediate consequences, the clock is now ticking to get their loans back in good standing before collection activity resumes.
What's Changing
When collections resume, the federal government will be able to garnish up to 15% of disposable income from the wages of defaulted borrowers. This happens automatically—no court order required—once a borrower has been in default for a specified period and has received proper notice.
Tax refund offsets are even more immediate. The government can intercept federal and state tax refunds to apply toward defaulted student loan balances. For many borrowers who count on tax refunds for major expenses, this can be a devastating surprise.
Social Security benefits, including disability payments, can also be offset for student loan debt, though protections limit the garnishment to a portion of benefits above a minimum threshold.
The Numbers Are Staggering
Federal student loan default rates had been rising even before the pandemic pause. With repayment resuming and aggressive collection now returning, millions of borrowers are at risk. The exact number of loans currently in default is difficult to pin down due to the extended pause, but estimates suggest it could be in the millions.
Making matters worse, college costs continue to climb. Average tuition at public four-year institutions rose 2.9% for the 2025-2026 school year, exceeding the general inflation rate for the first time in five years. Private nonprofit four-year colleges saw a 4.0% increase. These rising costs mean current students are taking on even larger debt loads.
Major Policy Changes Coming July 2026
The collections resumption is just one piece of a dramatically shifting student loan landscape. The One Big Beautiful Bill Act (OBBBA), signed in July 2025, introduces sweeping changes to federal student lending that take effect July 1, 2026.
Most significantly, the Federal Direct Graduate PLUS Loan program is being eliminated for all new borrowers starting that date. Graduate students have historically been able to borrow up to the full cost of attendance minus other financial aid—a provision that allowed for six-figure debt loads in fields like law, medicine, and business.
Existing repayment plans are also being overhauled. The SAVE, PAYE, and ICR income-driven repayment plans will be phased out by July 1, 2028. In their place, two new options will be available: a Standard Repayment Plan with fixed monthly payments and a Repayment Assistance Plan based on income.
What Borrowers Should Do Now
If you're currently in default on federal student loans, you have limited time to act before collections resume. Here are your primary options:
Loan Rehabilitation
By making nine voluntary, affordable monthly payments over ten consecutive months, you can remove your loan from default status. This also removes the default notation from your credit report after completion. Contact your loan servicer or the Default Resolution Group to set up a rehabilitation agreement.
Loan Consolidation
Consolidating your defaulted loans into a new Direct Consolidation Loan can immediately bring you back into good standing—if you either agree to repay under an income-driven plan or make three consecutive, on-time payments first. This option is faster than rehabilitation but doesn't remove the default from your credit history.
Income-Driven Repayment
If you're struggling to afford payments, income-driven repayment plans cap your monthly payment at a percentage of your discretionary income. Under current rules, some borrowers qualify for $0 monthly payments if their income is low enough. Review the new repayment options that will be available in 2026 to understand your long-term path.
The FAFSA Bright Spot
One piece of good news: the FAFSA process appears to be recovering from last year's technical difficulties. The Department of Education reports that more than 5 million FAFSA forms have already been submitted for the 2026-2027 academic year, a significant increase compared to the same point last year. Students and families applying for financial aid should complete the FAFSA as early as possible to maximize aid opportunities.
"Sound financial planning is never 'one and done.' It is a dynamic process that requires regular review, thoughtful adjustments, and a clear eye toward the future."
— Financial planning experts
For anyone carrying student debt, the next few months represent a critical window. Understand your loan status, explore your repayment options, and take action before involuntary collections begin. The federal government is a creditor with extraordinary powers—powers it's about to start using again.
