The longest student loan payment pause in American history is definitively over, and for 5.5 million borrowers in default, the consequences are about to become very real. Beginning the week of January 7, 2026, the Department of Education will resume aggressive collection activities including wage garnishment—a jarring shift for those who have grown accustomed to years without repayment obligations.
The announcement marks the end of federal forbearance policies that began in March 2020 under President Trump, continued through the Biden administration, and are now concluding under President Trump's second term. For many borrowers, it will be the first time in nearly five years that they've faced active collections.
How Wage Garnishment Works
When federal student loan borrowers default—typically after 270 days without payment—the government gains powerful collection tools not available to private creditors:
- Wage garnishment: Up to 15% of disposable income can be withheld directly from paychecks without a court order
- Tax refund offset: Federal and state tax refunds can be seized and applied to outstanding debt
- Social Security offset: Up to 15% of Social Security benefits can be withheld for borrowers in retirement
- Credit reporting: Defaults are reported to credit bureaus, devastating credit scores
The first batch of notices is expected to reach approximately 1,000 borrowers in the first week of January, with the pace accelerating throughout the year.
"For borrowers who have been in default but haven't faced consequences during the pandemic pause, this is going to be a shock. The government has extraordinary collection powers, and they're about to use them."
— Betsy Mayotte, President of The Institute of Student Loan Advisors
Over 300,000 IDR Applications Rejected
Compounding the crisis, the Department of Education rejected 327,955 applications for income-driven repayment (IDR) plans in August alone, according to a December 15 court filing. Another 802,730 IDR applications remain pending as of late November.
The rejected applications stemmed from what the department called "unforeseen ambiguity"—borrowers had requested enrollment in plans offering "the lowest monthly payment," but when two plans resulted in equal payments, the department declined to choose for them.
This bureaucratic snarl left hundreds of thousands of borrowers in limbo, unable to access the income-based payment plans that could have prevented default.
The SAVE Plan Shutdown
Adding to borrower confusion, the Trump Administration reached a settlement with Missouri on December 9 to effectively end the Biden-era SAVE (Saving on a Valuable Education) plan. Under the agreement:
- No new borrowers will be enrolled in SAVE
- All pending SAVE applications will be denied
- Current SAVE enrollees will be moved to other repayment plans
The SAVE plan had offered the most generous income-driven terms, including lower payment percentages and faster forgiveness timelines. Its elimination removes what was expected to be a lifeline for millions of struggling borrowers.
What Options Remain
Starting in late December 2025, Income-Based Repayment (IBR) becomes the most widely available income-driven option. The plan caps payments at 10-15% of discretionary income and offers forgiveness after 20-25 years of payments.
Borrowers have several options to avoid wage garnishment:
Rehabilitation: Making nine on-time payments over ten months can remove a loan from default status and stop collection activities. This is often the best option for those who can afford modest monthly payments.
Consolidation: Combining federal loans into a new Direct Consolidation Loan can cure default immediately, though it may restart forgiveness clocks.
Income-Driven Repayment: Once out of default, enrolling in IBR can reduce payments to as low as $0 for those with minimal income.
Deferment or Forbearance: Temporary pauses remain available for specific circumstances like unemployment or economic hardship.
The Scale of the Crisis
The student loan crisis extends far beyond the 5.5 million in default. Total outstanding student debt exceeds $1.6 trillion, held by more than 42 million Americans. The average borrower owes approximately $38,000.
Default rates vary dramatically by institution type. Borrowers who attended for-profit colleges default at roughly three times the rate of those who attended public universities. Those who didn't complete their degrees are particularly vulnerable, carrying debt without the credential that might have helped them repay it.
A Glimmer of Hope: Bankruptcy
One potentially underutilized option is bankruptcy discharge. A recent study found that the success rate for student loan borrowers attempting to discharge their debt through bankruptcy has jumped to 87%—up from 61% in 2017 and 40% in 2007.
The improvement reflects changing judicial attitudes and guidance from the Biden administration encouraging judges to more fairly evaluate "undue hardship" claims. However, relatively few borrowers pursue this option due to the persistent myth that student loans cannot be discharged in bankruptcy.
What Borrowers Should Do Now
For those facing potential wage garnishment, immediate action is critical:
- Check your loan status: Log into StudentAid.gov to verify whether you're in default
- Contact your servicer: Begin rehabilitation or consolidation before garnishment starts
- Explore income-driven options: Apply for IBR if your income has dropped
- Document hardship: If pursuing bankruptcy, gather evidence of ongoing financial difficulty
- Seek free help: The Student Loan Borrower Assistance program offers free counseling
The return of aggressive collections marks the end of an extraordinary chapter in American higher education finance. For millions of borrowers, the bill is finally coming due—and the coming months will test both individual resilience and a system that many critics argue was broken long before the pandemic began.
