The five-year grace period is over. This week, the Trump administration began sending wage garnishment notices to federal student loan borrowers in default—the first step in resuming involuntary collections that had been suspended since March 2020. For more than 5 million Americans with defaulted student loans, the notice in their mailbox marks the end of an era and the beginning of a financial reckoning.
According to a Department of Education spokesperson, approximately 1,000 notices were sent during the week of January 7, with that number expected to "increase in scale on a month-to-month basis" as the government works through its backlog of defaulted accounts.
What Wage Garnishment Means
When a federal student loan goes into default—defined as missing payments for at least 270 days—the government gains the authority to garnish wages without a court order. This is a power unique to federal student loans and not available to most other creditors.
Under wage garnishment:
- Up to 15% of disposable income can be withheld from each paycheck after taxes
- Employers are legally required to comply with garnishment orders
- No lawsuit is necessary—the government can proceed administratively
- Social Security benefits can also be garnished (up to 15%) for defaulted loans
- Tax refunds may be seized through the Treasury Offset Program
For a borrower earning $50,000 annually, 15% garnishment represents roughly $5,600 per year—nearly $500 per month that never makes it to their bank account.
A Timeline of the Pause
The student loan payment pause began in March 2020 under the first Trump administration as an emergency response to the COVID-19 pandemic. Interest stopped accruing, payments were suspended, and collections on defaulted loans were halted.
The pause was extended repeatedly under both Trump and Biden, with payments finally resuming in October 2023. However, involuntary collections—including wage garnishment, tax refund seizure, and Social Security offset—remained suspended through a series of temporary forbearances.
In May 2025, the Department of Education announced it would resume collections in early 2026, giving borrowers several months to address their default status before enforcement began.
Your Options to Avoid Garnishment
Borrowers who receive a garnishment notice have at least 30 days before their wages can be withheld. During this window, several options exist to stop or prevent garnishment:
1. Loan Rehabilitation
The rehabilitation program allows borrowers to exit default by making nine "reasonable and affordable" monthly payments over a 10-month period. Payments are typically set at 15% of discretionary income, and for borrowers with little income, payments can be as low as $5.
Pros: Removes the default notation from your credit report; restores access to income-driven repayment plans and forgiveness programs.
Cons: Takes 10 months to complete; can only be used once per loan.
2. Loan Consolidation
Defaulted loans can be consolidated into a new Direct Consolidation Loan, immediately removing the default status. To consolidate, borrowers must either make three consecutive voluntary payments or agree to enroll in an income-driven repayment plan.
Pros: Faster path out of default than rehabilitation; immediately stops garnishment proceedings.
Cons: Default history remains on credit report; may lose credit for payments toward forgiveness programs.
3. Full Repayment
Paying off the entire balance—principal plus accrued interest—immediately resolves the default. For borrowers with significant savings or access to family assistance, this provides the cleanest resolution.
4. Request a Hearing
Borrowers can request a hearing to object to garnishment on grounds of financial hardship. During the hearing process, garnishment is typically delayed. If successful, borrowers may be able to reduce the garnishment amount below 15%.
Changes Under Recent Legislation
It's important to note that President Trump's "One Big Beautiful Bill Act," signed in July 2025, significantly overhauled the federal student loan system. Several popular repayment options have been phased out:
- SAVE Plan: Eliminated (was offering payments as low as 5% of income)
- PAYE Plan: Phased out for new enrollees
- Income-Based Repayment: Modified with less generous terms
- Economic hardship deferment: Restrictions added
Borrowers who were enrolled in these plans before the changes generally retain their existing terms, but new borrowers have fewer options than in the past.
The Scale of the Problem
More than 5 million federal student loan borrowers were in default when the Department of Education announced the resumption of collections. The total defaulted balance exceeds $140 billion.
Many of these borrowers slipped into default during the pandemic-era pause, when the lack of communication and frozen accounts may have obscured their status. Others defaulted before the pause and have spent nearly six years in a sort of financial limbo.
"Borrowers in default seeking to prevent wage garnishments have three main options: student loan rehabilitation, loan consolidation, or full repayment. Each has trade-offs, and the right choice depends on individual circumstances."
— Student loan expert guidance
Action Steps for Affected Borrowers
If you're in default on federal student loans, here's what to do now:
- Verify your loan status: Log in to StudentAid.gov to confirm your loan status and servicer information.
- Contact your servicer immediately: Don't wait for a garnishment notice. Proactively reaching out demonstrates good faith and gives you more options.
- Evaluate your options: Consider whether rehabilitation, consolidation, or another path makes the most sense for your situation.
- Act within 30 days: If you receive a garnishment notice, you have limited time to respond before wage withholding begins.
- Seek assistance if needed: Nonprofit organizations like the National Foundation for Credit Counseling offer free guidance on student loan issues.
The resumption of wage garnishment marks a return to pre-pandemic collection norms after an unprecedented pause. For borrowers who have been in default, the time to act is now—before that 15% of each paycheck starts disappearing.
