The financial landscape for student loan borrowers has dramatically shifted in 2025, bringing with it serious implications for millions of Americans. After a five-year pause, the U.S. Department of Education resumed collections on defaulted federal student loans starting May 5, 2025, marking the end of pandemic-era protections that shielded borrowers from aggressive collection tactics.
The Current Crisis: By the Numbers
More than 5 million borrowers have not made a monthly payment in over 360 days and sit in default—many for more than 7 years—and 4 million borrowers are in late-stage delinquency (91-180 days). As a result, there could be almost 10 million borrowers in default in a few months. This means nearly 25% of the federal student loan portfolio could be in default, affecting an unprecedented number of American workers and retirees.
More than 42 million Americans hold student loans, and collectively, outstanding federal education debt exceeds $1.6 trillion. What makes this situation particularly alarming is that only 38 percent of borrowers are in repayment and current on their student loans.
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What Wage Garnishment Means for Your Paycheck
When your federal student loans go into default, the government gains extraordinary collection powers that can severely impact your financial stability. The Education Department can garnish up to 15% of defaulted borrowers’ disposable income and federal benefits, as well as their entire federal tax refunds.
How Much Can Be Taken?
The wage garnishment rules are specific but harsh:
- Up to 15% of disposable income: The U.S. Department of Education can garnish up to 15% of your disposable, or after-tax, pay
- Minimum protection: By law, you must be left with at least 30 times the federal minimum hourly wage ($7.25) a week, which is $217.50
- No court order required: Unlike private loans, federal student loan garnishment doesn’t require court approval
For many families already struggling with inflation and rising costs of living, losing 15% of their paycheck can be devastating. “In an environment where the cost of living remains stubbornly high, this kind of withholding from your income can pose real problems when trying to make ends meet, and force people into choosing between vital expenses,” said Nancy Nierman, assistant director of the Education Debt Consumer Assistance Program in New York.
Timeline: When Will Garnishments Begin?
The collection process follows a specific timeline that borrowers need to understand:
- May 5, 2025: Treasury Offset Program restart, allowing seizure of tax refunds and federal benefits
- Summer 2025: The Treasury Department will send notices to 5.3 million defaulted borrowers about the collection activity of their wages “later this summer”
- Fall 2025: Actual wage garnishment expected to begin
Borrowers in default will receive a 30-day notice before their wages are garnished, providing a critical window for taking protective action.
Beyond Paychecks: Other Financial Impacts
Wage garnishment is just one tool in the government’s collection arsenal. Defaulted borrowers also face:
Tax Refund Seizure
Your entire federal tax refund can be seized, including any refundable credits. However, if you’ve already received your 2024 federal income tax refund, “the government cannot claw it back”.
Social Security Benefit Reduction
Perhaps most concerning for older Americans, Social Security recipients can typically see up to 15% of their monthly benefit reduced to pay back their defaulted student debt, but beneficiaries need to be left with at least $750 a month. More than 450,000 borrowers ages 62 and older in default on their federal student loans and likely to be receiving Social Security benefits face this risk.
Real Stories: The Human Impact
The resumption of collections affects real families struggling to make ends meet. Jason Collier, a special education teacher in Virginia, often needs to wait until payday to fill up the gas tank of his car — and in the meantime hopes he doesn’t run out. “Money is tight when you’re a teacher,” Collier, 46, said. He fears that garnishment would create an even tighter financial pinch while juggling expenses for two children and medical bills from a cancer diagnosis.
“Most people who default on their student loans ‘truly cannot afford to pay them,'” James Kvaal, who served as U.S. undersecretary of education for former President Joe Biden, said in an April interview with CNBC. “The consequences are punitive and sometimes tragic,” Kvaal said.
Your Rights and Protections
Despite the severity of wage garnishment, borrowers do have rights and protections:
Notice Requirements
- 30-day notice before wage garnishment begins
- 65-day notice before Social Security benefit seizure
- Right to request a hearing before an administrative law judge
Employment Protection
Your boss is not allowed to terminate you because of the wage garnishment, providing some job security during this difficult time.
Limited Garnishment for Self-Employed
It is more difficult for the federal government to garnish the wages of someone who receives 1099 income. “If there is no employer, wage garnishment can’t happen”.
How to Protect Yourself: Action Steps
If you’re behind on student loan payments or facing default, immediate action is crucial:
1. Contact the Default Resolution Group
Contact the government’s Default Resolution Group to make a monthly payment, enroll in an income-driven repayment plan, or sign up for loan rehabilitation.
2. Explore Income-Driven Repayment Plans
These plans can significantly reduce monthly payments based on your income and family size, making loans more manageable.
3. Consider Loan Rehabilitation
This process allows you to make a series of on-time payments to bring your loan out of default status.
4. Request Forbearance or Deferment
“We’re advising clients to request a retroactive forbearance to cover missed payments, and a temporary forbearance until they can get enrolled in an income-driven repayment plan”.
5. Consolidation Options
You can also avoid entering default and having wages garnished through loan consolidation. Essentially, this process replaces your old debt with a new loan that’s in good standing and on which you can start making payments.
Legislative Efforts to Provide Relief
Recognizing the hardship that resumed collections will cause, Congresswoman Ayanna Pressley (MA-07), along with Senators Cory Booker (D-NJ) and Elizabeth Warren (D-MA), reintroduced the Ending Administrative Wage Garnishment Act of 2025, legislation that would provide borrower relief and support by suspending garnishment as a tool for student debt collection by the federal government.
The proposed legislation would:
- Suspend the Secretary of Education’s authority to garnish wages, tax refunds, and Social Security checks
- Require prompt refund of improperly garnished wages within one week
- Prohibit garnishment on loans outstanding for more than 10 years
- Establish double damages for borrowers whose wages are improperly garnished
The Broader Context: A System in Crisis
The resumption of aggressive collection tactics comes at a time when the student loan system faces unprecedented challenges. Millions of borrowers who signed up for the Biden administration’s new repayment plan, known as SAVE, or the Saving on a Valuable Education program, were caught in limbo after GOP-led lawsuits managed to get the plan blocked in the summer of last year.
The announcement comes at a dizzying time for the Department of Education, which is being cut in half amidst the Trump administration’s mass layoffs across the federal workforce, potentially making it even more difficult for borrowers to get the help they need.
Looking Ahead: What This Means for Your Financial Future
The resumption of student loan collections represents a significant shift in federal policy that will affect millions of American families. Student loans differ from other types of consumer debt in that there is no statute of limitations on collections, meaning the government can pursue punitive actions for defaulted loans indefinitely.
For borrowers, this reality makes proactive action essential. The 30-day notice period before garnishment begins provides a critical window, but waiting until that notice arrives may limit your options.
Take Action Now
The return of student loan wage garnishment in 2025 marks a pivotal moment for millions of Americans carrying education debt. With starting as early as June 2025, the Treasury Department will send notices to 5.3 million borrowers about upcoming wage collection, the time for action is now.
Whether you’re currently in default, approaching default, or simply concerned about your student loan situation, reaching out for help today can prevent devastating financial consequences tomorrow. The resources and protections exist, but they require prompt action to be effective.
Don’t wait for collection notices to arrive in your mailbox. Contact your loan servicer, explore your repayment options, and take control of your financial future before wage garnishment becomes your reality. Your paycheck—and your family’s financial stability—may depend on the actions you take today.
With student loan wage garnishment resuming in summer 2025, up to 15% of your paycheck could be at risk if you’re behind on federal student loan payments. Contact the Default Resolution Group immediately to explore income-driven repayment plans, loan rehabilitation, or forbearance options before garnishment notices arrive.