Student Loan Wage Garnishments Resume This Month as 800,000 Borrowers Remain Stuck in Backlog

For millions of Americans carrying federal student loan debt, 2026 is bringing a painful reality check. The Education Department has resumed wage garnishment for borrowers in default, even as more than 800,000 people remain trapped in a processing backlog for affordable repayment plans and loan forgiveness applications.

Wage Garnishment Returns

After years of pandemic-related pauses, the federal government has restarted one of its most aggressive debt collection tools: garnishing wages directly from borrowers' paychecks. Notices went out to approximately 1,000 borrowers the week of January 7, with the Education Department signaling that the pace will accelerate monthly.

For borrowers in default—defined as missing payments for 270 days or more—garnishment means the government can take up to 15% of disposable income without a court order. With approximately 9 million borrowers currently in default, the potential scale of enforcement is significant.

"Many of the people who helped assist borrowers were among those terminated in the Education Department workforce reductions."

— CNBC analysis of student loan servicer capacity

The 800,000-Person Backlog

Perhaps more troubling than the return of garnishment is the administrative paralysis affecting borrowers who are trying to do the right thing. More than 800,000 federal student loan holders remain stuck in a backlog of applications for income-driven repayment plans or debt forgiveness programs.

The backlog has multiple causes:

• Staffing cuts: The Education Department terminated nearly half of its staff in March, including many specialists who processed borrower applications
• SAVE plan litigation: The Biden administration's affordable repayment program spent 20 months in legal limbo, creating uncertainty and application backlogs
• System transitions: Borrowers shifted between loan servicers during the pause period, leading to lost documentation and processing delays

For those stuck in the backlog, the consequences are real. Many are unable to access lower monthly payments they would otherwise qualify for, while others face uncertainty about whether promised forgiveness will actually materialize.

The SAVE Plan's Demise

Adding to borrower challenges, the Saving on a Valuable Education (SAVE) program—the Biden administration's signature affordable repayment plan—is officially ending after nearly two years of legal battles. Republican state attorneys general successfully argued that the program exceeded the Education Department's legal authority.

Approximately 7 million borrowers enrolled in SAVE must now transition to alternative repayment plans, which will likely mean higher monthly payments for many:

• SAVE caps: Under SAVE, undergraduate borrowers paid 5% of discretionary income versus 10% under older income-driven plans
• Interest subsidies: SAVE prevented unpaid interest from capitalizing; other plans do not
• Forgiveness timelines: Some SAVE borrowers with small original balances qualified for faster forgiveness

A new Repayment Assistance Plan authorized by the One Big Beautiful Bill Act will become available in July 2026, but details remain limited, leaving borrowers in limbo during the transition.

The Tax Bomb Ticks

As if the repayment challenges weren't enough, borrowers who do achieve loan forgiveness through income-driven repayment now face a new tax consequence. The temporary federal exemption that made student loan forgiveness tax-free expired on January 1, 2026.

Going forward, borrowers who have their remaining debt forgiven after 20 or 25 years of income-driven payments will owe federal income tax on the forgiven amount. For someone with $50,000 in forgiven debt, this could mean a surprise tax bill of $10,000 or more, depending on their income bracket.

One important exception: Public Service Loan Forgiveness (PSLF) for government and nonprofit workers remains tax-free at the federal level.

What Borrowers Should Do Now

Financial advisors recommend several steps for student loan borrowers navigating this challenging environment:

Check your servicer portal: Confirm which repayment plan you're enrolled in and whether any applications are pending. Document everything.

Contact your servicer proactively: If you're in the backlog, call regularly and keep records of your attempts to resolve issues. Servicers cannot garnish wages or report negative information for borrowers actively working through processing delays.

Explore deferment or forbearance: If you're struggling to make payments while waiting for income-driven plan approval, temporary deferment may be available.

Plan for tax consequences: If you expect loan forgiveness in coming years, consider setting aside funds for potential tax liability or consulting a tax professional about planning strategies.

Avoid default at all costs: The resumption of garnishment makes default far more costly than during the pandemic pause. Even small payments can keep loans in good standing.

The Broader Picture

The student loan crisis reflects deeper challenges in American higher education financing. Total student debt now exceeds $1.7 trillion, with the average borrower owing approximately $37,000. For many, these debts delay homeownership, retirement savings, and family formation.

The Biden administration approved $188.8 billion in forgiveness for 5.3 million borrowers during its tenure, but that represents less than 12% of total outstanding debt. For the remaining 40 million borrowers, 2026 will require navigating a complex system with fewer resources and higher stakes than any time since the pandemic began.