Federal student loan borrowers who default on their loans could soon see a pay cut as the Department of Education resumes garnishing wages for unpaid debts.
About 1,000 defaulting debtors will receive wage garnishment notices the week of Jan. 7, a department spokesperson told CNBC in December. The number of notified borrowers is expected to increase. Wage garnishments were initially suspended in 2020 in response to the Covid-19 pandemic.
The federal government has the power to garnish a portion of a borrower’s wages, federal tax refund, and Social Security retirement or disability benefits if the borrower defaults on the loan (payments are at least 270 days late). The Department of Education first reinstated the Financial Offset Program on May 5, 2025, which garnishes federal payments for defaulted borrowers.
According to Federal Student Aid, borrowers will be notified 65 days before their federal payments will be garnished and 30 days before their wages will be affected. The government can seize up to 15% of a person’s disposable income (defined as income after mandatory deductions such as taxes) until the loan is repaid in full or the default is cured.
Wage garnishment can make a difficult situation even worse if the borrower is struggling with other commitments, like rent or a car payment, because wage garnishment puts some of the borrower’s funds completely out of control, said Vanguard financial advisor Sofoane Plaque. A survey conducted in December by the Institute for College Access and Success found that more than 40% of borrowers reported making trade-offs between loan payments and basic needs.
If you receive notice of an upcoming pay garnishment, there are steps you can take to protect your paycheck, but you need to act quickly.
“Communication and early action are key,” Plaque said. “Wage garnishment doesn’t have to derail your financial future if you take action now to take back control.”
Here’s what borrowers can do:
negotiate a repayment plan
If you’re delinquent on your loan and receive notice of a wage garnishment or other collection action, “the first thing you should do is try to get your loan delinquent,” says Kyla Taylor, a staff attorney at the National Consumer Law Center.
One solution is to pay off your delinquent student loans in full. If that is not possible, you may need to enter into a loan rehabilitation process. In this case, the borrower must negotiate a repayment plan with the servicer and make nine consecutive monthly payments on time.
Bruce McCrary, senior vice president of the National Credit Counseling Foundation, said wages can still be garnished while the loan is being rehabilitated, but the legal requirement is for garnishments to stop after five monthly payments. Foreclosures and federal payment garnishments do not count toward rehabilitation loan payments.
According to Federal Student Aid, you may be able to avoid wage garnishment by negotiating a payment plan with your loan servicer and making your first payment within 30 days of the wage garnishment notice. Payments could be as low as $5 a month, depending on the negotiated plan, the agency said. However, each loan can only be rehabilitated once, so if you default again, this is not an option.
How to dispute a wage garnishment
Borrowers facing wage garnishment can appeal on any of the following grounds:
The amount, enforceability, or existence of your debt is in question A 15% wage garnishment can cause extreme financial hardship You have been employed within 12 months of a previous involuntary separation If you were defrauded by your educational institution, you may be eligible to have your loan forgiven under statutory programs such as Total Disability Discharge or Borrower Defense.
Requests for a hearing must be in writing and postmarked within 30 days of the notice of garnishment. You must provide documentation to support your objection and pay any legal and travel costs necessary to attend the in-person hearing. The hearing may be held in person or by telephone, or may be based on documents submitted with the hearing request.
“It is very important that the borrower clearly explains the basis of the objection and provides evidence to support the wage garnishment objection,” Taylor says. “The hearing officer (usually an employee of the Department of Education) will issue a written decision on the request for a hearing.”
According to Federal Student Aid, decisions regarding wage garnishment are typically made within 60 days of the hearing request. As a result, your paycheck garnishment can be suspended for up to 12 months, reduced to less than 15% of your income, or enforced at the full 15% allowed.
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