This development represents a significant shift in federal student loan policy and will be the first time a portion of borrowers' paychecks has been at risk since the beginning of the COVID-19 pandemic in March 2020, when the federal government halted all collection activity as part of emergency relief measures.
Starting the week of January 7, the Education Department expects approximately 1,000 defaulted student loan borrowers to receive notices of administrative wage garnishment, according to a U.S. Department of Education spokesperson. After that initial wave, the number of notified borrowers will continue to increase substantially in the following weeks and months.
The resumption of wage garnishment comes at a particularly challenging time for student loan borrowers, who have been navigating significant changes to the federal lending system over the past several years. More than 5 million student loan borrowers are currently in default, and that total could swell to roughly 10 million borrowers soon, the Education Department said earlier this year. This potential doubling of defaulted borrowers reflects ongoing struggles many Americans face in managing their education debt obligations.
The U.S. government possesses extraordinary collection powers on federal debts that far exceed those available to private creditors. Under federal law, the government can seize borrowers' federal tax refunds, garnish wages, and even withhold Social Security retirement and disability benefits to recover defaulted student loan debt.
According to federal regulations, the Education Department can seize up to 15% of a student loan holder's disposable income — calculated as after-tax earnings — to put toward their outstanding debt. However, by law, borrowers must be left with at least 30 times the federal minimum hourly wage of $7.25 per week, which amounts to about $217.50.
The context surrounding this policy shift is particularly concerning given current economic conditions. Student loan holders have been under increasing pressure from a weakening labor market, which has seen unemployment rates tick upward and job security diminish for many workers. Additionally, borrowers have faced a barrage of changes to the federal lending system, including modifications to repayment plans, shifting eligibility criteria for forgiveness programs, and recent trouble accessing relief programs that were designed to help struggling borrowers.
The scope of America's student debt crisis is staggering. More than 42 million Americans currently hold federal student loans, and the outstanding debt exceeds $1.7 trillion, making it the second-largest category of consumer debt behind only mortgages. This massive debt burden has far-reaching implications for the economy, affecting borrowers' ability to purchase homes, start businesses, save for retirement, and achieve other financial milestones.
Consumer advocates are urging affected borrowers to take immediate action to avoid wage garnishment. They recommend that student loan borrowers contact the government's Default Resolution Group as soon as possible to explore options for getting current on their loans. Several avenues are available to borrowers seeking to escape default status, including signing up for loan rehabilitation programs, which allow borrowers to make a series of affordable payments to remove the default status from their credit reports, or loan consolidation, which can provide access to income-driven repayment plans that cap monthly payments at a percentage of discretionary income.
