Government to Restart Wage Garnishment for Defaulted Student Loans This Summer

Starting this summer, the U.S. Department of Education will resume wage garnishment for borrowers with defaulted student loans, a move affecting approximately 5 million Americans. This action follows a pause in collections during the COVID-19 pandemic, which provided temporary relief to many borrowers.

Student loans enter default status after 270 days of missed payments, excluding any pandemic-related pauses. Once in default, loans are transferred to private collection agencies, and the Department of Education can begin garnishing wages after providing a 30-day notification.

Wage garnishment involves withholding up to 15% of a borrower's disposable income to repay the defaulted loan. Additionally, tax refunds and Social Security benefits may also be garnished to cover outstanding debts.

Borrowers enrolled in the Saving on a Valuable Education (SAVE) plan currently benefit from administrative forbearance, meaning they are not required to make payments and are not considered in default. However, confusion remains about the status of these loans.

To avoid wage garnishment, borrowers can pursue loan rehabilitation by making nine consecutive on-time payments, consolidate loans to potentially lower payments, or negotiate repayment agreements with loan servicers. Paying off the loan in full is another option but often not feasible.

Borrowers will receive a 30-day notice before garnishment begins, which includes options to voluntarily reenter repayment or object to the garnishment through a hearing. Employment protections also prevent job loss or disciplinary action due to wage garnishment.

Ignoring defaulted loans can severely impact credit scores, making it harder to secure mortgages, car loans, or credit cards. Default status also disqualifies borrowers from income-driven repayment plans and additional federal aid.

It is unlikely for borrowers making on-time payments to experience wage garnishment errors, but partial payments may still lead to default. Borrowers should ensure full payments to maintain good standing.

Key Actions for Borrowers Facing Default

• Check your loan status regularly at StudentAid.gov or your loan servicer’s website.
• Consider loan rehabilitation by making nine on-time payments to restore good standing.
• Explore loan consolidation options to simplify payments and potentially reduce monthly amounts.
• Contact your loan servicer to negotiate repayment agreements or request forbearance if facing financial hardship.
• Respond promptly to any notices from the Department of Education to avoid wage garnishment.

Understanding these options and acting quickly can help borrowers avoid wage garnishment and protect their financial future.