Additional Coverage:
Federal Wage Garnishment Resumes for Millions of Student Loan Borrowers
**Washington D.C. ** – Millions of federal student loan borrowers in default are now facing a long-dreaded reality: the restart of federal wage garnishment.
For the first time in approximately five years, the U.S. Education Department has begun actively seizing a portion of paychecks from those who defaulted on their loans, a move that could significantly impact households already navigating a challenging economic landscape.
The Education Department had announced last year that borrowers in default were at risk of having up to 15% of their wages garnished, though a precise start date remained elusive until now. Notices have begun to be issued, signaling the formal re-initiation of these collection efforts.
“Wage garnishment is a scary concept since they can take 15% of after-tax income,” explained Ashley Morgan, a debt and bankruptcy attorney with Ashley F. Morgan Law PC, who has extensive experience assisting clients with debt resolution.
What’s Happening Now:
- The Education Department has started sending garnishment notices to federal student loan borrowers in default, with the initial wave dispatched this week.
- Officials confirm this action follows the conclusion of the pandemic-era collections pause and is expected to intensify throughout the year as more defaulted accounts transition into enforced collections.
- This marks the latest phase in the post-pandemic student loan “reset,” following the resumption of payments in late 2023 and the gradual restart of tax refund seizures and other offsets scheduled for 2025.
Who is Impacted?
Federal wage garnishment specifically targets borrowers with federal student loans that are in default, meaning they have missed required payments for at least 270 days. “So you are not at risk for garnishment if you are just a few months behind and not in actual default,” Morgan clarified.
- An estimated 5.3 million borrowers are currently in default and are expected to receive garnishment-related notices as collection efforts escalate.
- Earlier estimates from the Education Department suggested that approximately 2 million borrowers were at immediate risk in the initial phases, with several million more likely to face similar actions as delinquencies transition into default.
- It’s important to note that private student loans operate under different regulations and typically necessitate a court judgment before wages can be garnished.
How Wage Garnishment Works:
For federal student loans, the government possesses the authority to instruct employers to withhold a portion of a worker’s paycheck without requiring a court order. This process is known as administrative wage garnishment.
- The Education Department or its contracted collection agencies can generally garnish up to 15% of a borrower’s disposable pay for defaulted federal loans.
- By law, garnishment must still ensure that the borrower is left with at least 30 times the federal minimum wage per week.
Currently, this equates to $217.50.
- Borrowers are legally entitled to receive at least 30 days’ written notice before garnishment commences and have the right to request a hearing to dispute the amount or claim financial hardship.
Why This Matters for Borrowers:
A 15% reduction in take-home pay can severely impact households, particularly those already struggling with elevated housing, food, and childcare costs. Beyond the immediate financial strain, default and garnishment can lead to lower credit scores, making it more challenging and expensive to secure loans for significant purchases like cars or homes, and can even affect eligibility for certain employment background checks.
Experts also caution that older borrowers, especially those on fixed incomes, are particularly vulnerable when wage and benefit seizures are compounded by other debts and medical expenses. The AARP has even dubbed student loan collections an “unheralded burden” for older Americans.
What Student Loan Borrowers Should Know:
Even if wage garnishment has already begun, borrowers still have avenues to potentially reduce or halt the process.
- Open every notice: Ignoring communications from loan servicers or the Education Department can result in missed deadlines and the forfeiture of valuable appeal rights.
- Ask about rehabilitation or consolidation: Entering a loan rehabilitation agreement or consolidating defaulted loans into a new federal Direct Loan can ultimately remove the default status and end garnishment, though specific terms will vary.
- Explore income-driven repayment (IDR): Once a borrower is out of default, enrolling in an IDR plan can cap monthly payments at a percentage of their income, helping to prevent a return to default.
- Document hardship: Borrowers have the right to request a hearing to argue that garnishment would create undue financial hardship or that the garnished amount has been miscalculated.
“If a collection notice arrives, it’s critical to respond immediately,” advised Broc Sleek, senior vice president of lending operations at LendKey. “If wage garnishment would create a major hardship, those borrowers should consider requesting a hearing.”