Trump administration will start to garnish wages for defaulted student loans

The Trump administration will begin to garnish wages from student loan borrowers who are in default next month, the Department of Education confirmed on Tuesday.

The big picture: The stepped-up collection effort follows several moves this year that will make things more difficult for holders of student loans.

• Those moves include ending a five-year repayment pause and the One Big, Beautiful Bill Act that will substantially reduce the number of repayment plans.

Driving the news: The Department of Education has said for months now that it will begin to forcibly seize pay from borrowers, and it's set to begin the week of Jan. 7.

• The department will start to notify about 1,000 defaulted borrowers of plans to withhold some of their wages, a spokesperson told Axios in a statement.
• Notices will increase "in scale on a month-to-month basis," the department said.

What they're saying: "This Administration's decision to garnish wages from defaulted student loan borrowers is cruel, unnecessary and irresponsible," Persis Yu, deputy executive director of the advocacy group Protect Borrowers, said in a statement.

State of play: After a five-year penalty pause, the 5.3 million borrowers in default could now see their wages garnished if they don't resume payments.

How it works: In addition to wages, the U.S. government can seize borrowers' federal tax refunds, Social Security benefits and disability benefits.

• All student loan collections activities "are required under the Higher Education Act of 1965 and Debt Collection Improvement Act of 1996 and conducted only after student and parent borrowers have been provided sufficient notice and opportunity to repay their loans," the department said.

Yes, but: The Consumer Credit Protection Act limits how much of a worker's pay can be garnished at a time.

• For "ordinary garnishments" — those not for support, bankruptcy or any state or federal tax — "the weekly amount may not exceed the lesser of two figures: 25% of the employee's disposable earnings, or the amount by which an employee's disposable earnings are greater than 30 times the federal minimum wage," per the Department of Labor.

By the numbers: Credit reporting agency TransUnion reported in September that 29% of borrowers — or 5.4 million people — were delinquent on their loans in June, meaning that they had not made a payment in at least 90 days.

• That's down slightly from a record high of 31% in April.
• About 42.7 million borrowers owe more than $1.6 trillion in federal student debt, according to the Department of Education.

What we're watching: The One Big, Beautiful Bill Act, which President Trump signed into law in July, cuts the number of repayment plan choices that federal student loan borrowers have down to two from five.

• The law phases out the SAVE plan, which 8 million loan holders were enrolled in as of October 2024, per the Brookings Institution.