The Trump administration plans to restart one of the toughest tools for collecting debt, wage garnishment, aimed at Americans who have defaulted on their student loans.
A spokesperson for the U.S. Department of Education told CNBC on Tuesday that the government will start garnishing wages for federal student loan borrowers in default in early January. For millions of borrowers, this is a sudden return to pre-pandemic enforcement after years when paycheck seizures were mostly not enforced.
This restart marks the first time since the beginning of the Covid pandemic that many borrowers may have part of their pay automatically taken to repay student debt. Collection efforts were put on hold during the pandemic. Now, for many borrowers, this return means facing serious consequences, as falling behind can quickly impact their take-home pay.
Starting the week of January 7, the Education Department expects around 1,000 borrowers in default to receive notices about wage garnishment, according to the spokesperson. After this initial wave, more borrowers will likely receive notices.
More than 5 million student loan borrowers are currently in default, and this number is expected to rise. The Education Department revealed that 10 million borrowers are expected to be on the list facing potential wage garnishment.
The federal government has extensive powers to collect on federal debts. Student loans are a clear example of this. Beyond garnishing wages, the government can also take federal tax refunds and seize portions of Social Security retirement and disability benefits. For borrowers living paycheck to paycheck, these actions can feel like a financial ambush.
Under the wage garnishment process, the Education Department can take up to 15% of a borrower’s after-tax income to pay off the student loan balance. There is a safeguard to prevent borrowers from being left with nothing. By law, borrowers must retain at least 30 times the federal minimum hourly wage each week. With the federal minimum wage at $7.25 per hour, this protected amount is $217.50 per week, according to higher education expert Mark Kantrowitz.
More than 42 million Americans hold student loans, and total outstanding student debt goes beyond $1.6 trillion. This debt burden means that even a small policy change can have a big imapct on millions of Americans, who will struggle even more with their wages being taken away.
Consumer advocates say there are actions borrowers can take to avoid wage garnishment, but timing is crucial. Borrowers in default should contact the government’s Default Resolution Group to explore options for getting back on track. One common option is loan rehabilitation, which can allow borrowers to bring their loans out of default by making a set number of agreed-upon payments over time.
For borrowers who have been behind for months or years, the restart of wage garnishment is coming sooner than they would have hoped. The date is now on the calendar, and notices are expected to start going out the week of January 7, and the department has indicated the list will grow from there.
Under the Biden administration, roughly 8 million people signed up for the SAVE plan, an income-driven repayment option introduced in 2023 to ease the burden of student debt. Unfortunately for those individuals, the Trump administration decided to restart interest charges for borrowers enrolled in the Biden-era plan back in August.
