Education Department Postpones Wage Garnishment and Other Collections on Defaulted Student Loans

The U.S. Department of Education said on Friday that it will postpone wage garnishment and other involuntary collection actions for borrowers whose federal student loans are in default. The decision delays the restart of seizures through employers and the Treasury Offset Program, which intercepts tax refunds and a portion of Social Security benefits to satisfy outstanding debt.

Temporary pause linked to new repayment overhaul

According to the department, the suspension is intended to create time to carry out repayment changes mandated by the Working Families Tax Cuts Act, the legislative package President Donald Trump has referred to as his “big beautiful bill.” The measure establishes an additional income-driven repayment option and offers new avenues for distressed borrowers to bring loans back into good standing.

Education Secretary Linda McMahon signaled the shift earlier this week during a visit to Rhode Island, noting that garnishments were set to be halted. Friday’s formal announcement confirms that collections through both wage withholding and Treasury offsets will remain on hold while the new policies are implemented.

Millions of borrowers affected

More than 42 million Americans carry federal education debt totaling over $1.6 trillion, according to the Congressional Research Service. Borrowers become legally in default after 270 consecutive days of missed payments. At that point, the government may claim up to 15 percent of after-tax wages and seize entire federal tax refunds as well as a portion of Social Security benefits.

Roughly 5 million borrowers were in default when the department last reported figures in April, and officials projected the tally could approach 10 million in the months ahead. A more recent estimate from advocacy group Protect Borrowers places the current number at about 9 million.

Policy reversals since pandemic relief expired

The federal pause on student loan payments and interest that began in 2020, in response to the COVID-19 pandemic, also halted collection activities. In April 2025 the Trump administration announced plans to restart those efforts in May, marking the end of a five-year moratorium. Subsequent decisions repeatedly adjusted the rollout:

• June 2025: The department paused its intention to garnish Social Security checks.
• December 2025: Officials confirmed that about 1,000 borrowers would receive wage-garnishment warning notices the week of Jan. 7, with additional notifications to follow.
• Jan. 7 2026: A coalition of organizations, including the NAACP and the American Federation of Teachers, joined Protect Borrowers in a letter urging Secretary McMahon to cancel the garnishment restart.

Advocacy groups argued that many borrowers faced hardship after years of economic volatility and called involuntary collections “counterproductive.” In a statement after Friday’s decision, Protect Borrowers said the administration had stepped back from taking money “directly out of working people’s paychecks.”

Next steps for borrowers

The Education Department has not specified a new date for resuming garnishments or Treasury offsets. Officials indicated that collections will remain paused until the Working Families Tax Cuts Act provisions are fully in place, giving borrowers additional repayment choices and streamlined paths out of default.

Imagem: financial planning 46

Borrowers currently in default can continue to access existing options, such as loan rehabilitation or consolidation, to restore their accounts. Under rehabilitation, a borrower makes nine on-time payments within ten months; consolidation allows the debt to be rolled into a new Direct Consolidation Loan, removing it from default status. The impending reforms are expected to broaden these pathways.

The Treasury Offset Program, administered jointly by the Department of the Treasury and the Department of Education, has long been a principal tool for recovering defaulted federal student loans. A restart would permit the government to withhold income-tax refunds and federal benefits until the debt is satisfied. For Social Security recipients, offsets can reduce monthly payments but must leave at least $750 per month intact, a limit set by federal regulation.

Broader context of student debt management

The administration’s revised timetable for collections follows continued debate in Congress over how to address the rising cost of higher education and the ballooning federal loan portfolio. While some lawmakers favor large-scale debt cancellation, others support targeted relief paired with stricter accountability for colleges and universities.

This year’s Working Families Tax Cuts Act attempts to balance those perspectives by expanding repayment flexibility without forgiving principal outright. Its success will depend on the department’s ability to update servicing platforms, notify borrowers, and coordinate with employers and federal agencies that administer offsets.

For now, individuals in default will not see their wages or federal benefits garnished, and tax refunds issued during the pause are expected to be disbursed in full. Borrowers are encouraged to monitor official communications from the Department of Education and their loan servicers for updates on when collections might resume.

Crédito da imagem: Evelyn Hockstein | Reuters