Have a Student Loan in Default? Your Wages Could Soon Be Garnished Again

After a five-year hiatus, the Department of Education is gearing up to resume the collections process on millions of borrowers who have defaulted on their federal student loans.

Borrowers who are in default are at least 270 days, or about nine months, behind on their federal student loan payments, and the status typically comes with harsh financial consequences. Chief among them is involuntary garnishment of wages and federal benefits. The Education Department says it will restart collections and garnishment activities on May 5.

“American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies,” said Education Secretary Linda McMahon in a statement Monday, referring to programs enacted by former President Joe Biden that sought to reform the student loan repayment system.

The financial penalties for falling behind on student loan payments have been largely blunted since the onset of the COVID-19 crisis, but that leniency is over. Forced collections from defaulted borrowers is the last major step in returning the loan repayment system to its pre-pandemic rules. It follows a year-long on-ramp aimed at easing borrowers back into repayment that ended last fall. Before that transition period, payments were entirely paused for over three years.

Now, more than 5 million borrowers are in default, according to the Education Department, but that number is set to double in the coming months as borrowers struggle to resume payments after years of not making them. Only 38% of borrowers are current on their loans, the department said. The remaining students are 90 days behind, aka delinquent, or in a forbearance, deferment or grace period.

Advocates of student loan borrowers decried the decision to restart collections given that the Education Department is in disarray following layoffs of more than 1,300 department workers last month.

The advocacy group Student Borrower Protection Center (SBPC) said that the Trump administration is throwing millions of borrowers “into the maw of government debt collection machine.”

“This is cruel, unnecessary, and will further fan the flames of economic chaos for working families across this country,” Mike Pierce, executive director of SBPC, said in an emailed statement.

Millions of student loan borrowers are already feeling the financial effects of running behind on their loan bills now that the full consequences of the missed student loan payments have returned.

Last week, credit scoring firm FICO noted a spike in delinquent student loan borrowers, as pandemic-era protections that shielded borrowers’ credit scores from late student loan payments expired.

In February alone, 2.7 million borrowers became delinquent, the firm said, tanking their credit scores by up to 171 points. Student loan delinquencies are so widespread that the nation’s average credit score fell by one point to 715 that month.

What to expect as student loan collections resume

The consequences of defaulting on student loans are wide-ranging and long-lasting.

Even before you default, a delinquent loan will likely have a major, negative effect on your credit score. But once the loan payment is about nine months late, more severe consequences kick in.

For starters, you become ineligible for many federal student loan programs, including forbearance and deferment periods in which you’re exempt from payments. You also lose the ability to choose an income-driven repayment (IDR) plan, and you'll lose eligibility for new Pell grants and federal loans.

The default is reported to the credit bureaus, hurting your score even more than a delinquent loan. That black mark can make it near impossible to buy or sell any assets or property.

Perhaps worst of all is that the federal government can garnish your income, including wages from your job(s) as well as federal payments, such as Social Security checks and tax refunds.

To get your loan back in good standing, you will need to complete a loan rehabilitation or consolidation program through the Education Department, which may take up to 10 months.

In the coming two months, the Education Department says it is rolling out a “robust communications campaign” designed to stress the importance of loan repayment and outline options for defaulted loans.

According to the department, it’s also implementing an AI assistant to help borrowers navigate their options, extending loan servicers' customer service hours, and simplifying the IDR enrollment and re-certification process.

Ahead of May 5, the Education Department said it’s reaching out to borrowers in default by email urging them to take action on their defaulted loan.

Later this summer, it will begin sending out wage garnishment notices.

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