The five-year moratorium on student loan wage garnishments has ended. Starting this month, the federal government is once again withholding wages from borrowers in default on their federal student loans—marking the return of one of the government's most powerful collection tools and affecting what could be millions of American workers.
Wage garnishment notices have already gone out to approximately 1,000 borrowers in default, with the number expected to increase monthly throughout 2026. For the first time since the COVID-19 pandemic prompted sweeping relief measures in March 2020, borrowers who have fallen behind on their payments face the prospect of having up to 15% of their disposable income automatically deducted from their paychecks.
The Scale of the Problem
The numbers are staggering. According to an analysis by Preston Cooper at the American Enterprise Institute, approximately 12 million federal student loan borrowers—more than one in four—are either delinquent on their payments or in outright default. Breaking down the figures:
- 5.5 million borrowers: Currently in default
- 3.7 million borrowers: More than 270 days late on payments
- 2.7 million borrowers: In early stages of delinquency
These figures represent a crisis in the making—one that predates the pandemic pause but was frozen in place during the five years of suspended payments and collections. With the SAVE income-driven repayment plan now being phased out and the garnishment machinery restarting, millions of borrowers face a reckoning.
What Wage Garnishment Means in Practice
When the government garnishes wages for defaulted student loans, it doesn't need a court order. Through the administrative wage garnishment process, the Department of Education can direct employers to withhold up to 15% of a borrower's disposable income—the amount remaining after legally required deductions like taxes and Social Security.
"This isn't just about the money being taken from paychecks. It's about the cascade of consequences: damaged credit, limited job opportunities, inability to get professional licenses, and the psychological toll of feeling like there's no way out."
— Student Loan Expert
For a borrower earning $50,000 per year, a 15% garnishment of disposable income could mean losing $400 to $500 or more per month—a devastating blow for workers already struggling with inflation, housing costs, and stagnant wages.
The End of SAVE and What Comes Next
The garnishment resumption coincides with the effective death of the SAVE (Saving on a Valuable Education) repayment plan, which had been the Biden administration's signature student loan initiative. Following legal challenges and the Trump administration's announcement of a proposed settlement, SAVE is being phased out with no new enrollments permitted.
In its place, a new Repayment Assistance Plan (RAP) is scheduled to become available on July 1, 2026, as part of the One Big Beautiful Bill Act signed into law last summer. Until then, borrowers face a confusing transition period with limited options:
Available Repayment Paths:
- Standard Repayment: Fixed monthly payments over 10 years
- Graduated Repayment: Payments start lower and increase
- Extended Repayment: Lower payments over up to 25 years
- Income-Based Repayment (IBR): Still available for eligible borrowers
- Repayment Assistance Plan: Coming July 1, 2026
Tax Implications Add to the Pain
As if wage garnishment weren't challenging enough, 2026 also brings the return of tax liability for certain forms of student loan forgiveness. After years of tax-free treatment, borrowers whose loans are forgiven may face significant tax bills—a phenomenon some have called the "tax bomb" that could add thousands of dollars to an already overwhelming financial burden.
What Borrowers Should Do Now
For borrowers currently in default or at risk of falling behind, the time to act is now. Several options exist to avoid or halt wage garnishment:
- Loan rehabilitation: Make nine on-time payments over 10 months to exit default
- Loan consolidation: Combine defaulted loans into a new Direct Consolidation Loan
- Income-driven repayment: Enroll in IBR or wait for RAP to reduce monthly payments
- Contact your servicer: Many offer hardship forbearance for temporary relief
- Seek legal advice: Borrowers facing garnishment may have options to challenge or reduce amounts
The Bigger Picture
The resumption of wage garnishments is more than a policy change—it's a symbol of a student loan system that many borrowers and experts view as fundamentally broken. With total outstanding student debt exceeding $1.8 trillion and millions of borrowers unable to make payments, the question of what comes next remains deeply uncertain.
For now, the machinery of collection has restarted. And for the millions of Americans whose paychecks will soon be smaller as a result, the long pause is definitively over.
