Student Loan Borrowers in Default Could Face Wage Garnishment Next Year, Report Says. Here's How to Get Ahead of It

If you have a federal student loan in default, the window to fix it on your own terms may be closing. A report published Monday, Oct. 19, says the Trump administration is preparing to restart forced collections, including wage garnishment and seized tax refunds, as soon as next year.

Nothing has been officially announced, and the plans could still change. But the steps borrowers can take now are the same either way, and they work best before any collection notice arrives.

What did the report say about student loan collections?

According to The Washington Sun, citing five sources, officials are preparing financial penalties for borrowers in default starting next year. Treasury may hire private debt collectors as soon as November. Nearly 10 million borrowers are in default, and collections could include garnished wages and seized federal payments.

The Washington Sun report, by reporters Jeff Stein and Kadia Goba, said the plans are unlikely to be announced before the midterm elections. One source described a pre-election announcement as "politically insane." The Office of Management and Budget and Treasury declined to comment, and the Education Department said it does not respond to "fishing expeditions."

The federal student loan portfolio totals about $1.7 trillion. Some officials want to start garnishing wages and benefits in the tax year ending April 15, 2027, the report said, though that could slip until Treasury's new Defaulted Loans Support Center is fully working. Forbes, which followed up on the report the same day, noted that the administration has threatened such collections before and backed off at the last minute.

Which collection tools could the government use?

The report described two main tools. The first is the Treasury Offset Program, which can intercept federal payments. That includes tax refunds, and it can include the earned income tax credit and child tax credit that many working families count on at tax time.

Social Security benefits can be reduced too. Citing the National Consumer Law Center, Newsweek reported that up to 15% of those benefits can be withheld, as long as the remaining monthly benefit stays at or above $750. Supplemental Security Income and veterans' benefits are not subject to the same garnishment.

The second tool is administrative wage garnishment. The government can direct an employer to withhold up to 15% of a borrower's wages without a court order. Borrowers are supposed to get written notice first, mailed to their last known address. Forbes reported that Treasury offset notices give 65 days to respond, while wage garnishment and Social Security offset notices give 30 days.

That mailing detail matters. If you have moved since your loans went into default, the notice may never reach you. Updating your address with your loan holder is a simple step that keeps you from being surprised.

What this means for your wallet

Here is a worked example. Say you earn $3,000 a month after required deductions. A 15% garnishment would take up to $450 a month, or $5,400 over a year, before you ever see the money. If you also expected a $2,500 tax refund, that refund could be intercepted as well.

Compare that with a rehabilitation plan. Rehabilitation payments must be "reasonable and affordable," as Forbes noted, which could be less than what a garnishment would take. The bigger difference is that rehabilitation is something you choose and control, rather than something that happens to your paycheck.

**Related read:** As we explained in our guide to the new Defaulted Loans Support Center, borrowers can now apply online to get out of default instead of mailing paper forms.

Here are the main paths out of default that Forbes and Newsweek outlined:

• **Rehabilitation:** Make at least nine monthly payments you and your loan holder agree are reasonable and affordable. When you finish, the record of default can be removed from your credit report. You can generally rehabilitate a loan only once.
• **Consolidation:** Take out a new Direct Consolidation Loan that pays off the defaulted loans. This is often faster, but Forbes cautioned it could limit repayment options and may erase existing forgiveness credit. Borrowers already being garnished may not qualify.
• **Paying, settling or disputing:** You can pay off or settle the debt, or contest it if you believe it is wrong. Hardship objections are historically rarely approved.
• **Getting back on track:** Once out of default, you can usually access income-driven repayment, deferment and forbearance again.

The government says its new process is helping. In the less than six months since the Education and Treasury departments began working together, rehabilitation approvals rose 69% and consolidations out of default rose 95%, according to the departments, as reported by Benzinga.

If you are dealing with private collectors on other debts, our guide to your rights with debt collectors explains what they can and cannot do. And once you are current again, these strategies to pay off student loans faster can help you stay there.

What to watch next

Watch for an official announcement from the Education Department or Treasury, likely after the midterms if the report is accurate. Also watch whether Treasury hires private collection agencies in November, as sources told The Washington Sun it might.

Critics are already pushing back. Michael Pierce of the advocacy group Protect Borrowers said Treasury may lack the data needed to legally certify debts for collection. On the other side, Marc Goldwein of the Committee for a Responsible Federal Budget estimated that postponing collections has cost taxpayers about $5 billion so far.

Whatever happens in Washington, the safest move for a borrower in default is to act before a notice shows up. Log in to your federal student aid account, confirm who holds your loan, update your mailing address and look at rehabilitation or consolidation while you still have choices.