Federal student loan borrowers are facing a harsh new reality: the pandemic-era reprieve is over, … More
gettyStudent Loan Wage Garnishment Looms For Millions
Federal student loan borrowers are facing a harsh new reality: the pandemic-era reprieve is over, and student loan wage garnishment looms as a real threat. Delinquency rates on student loans have skyrocketed since payments resumed, roughly doubling in just a few months. Education Department data from February showed more than four million borrowers were already behind on their payments. A new study by the Federal Reserve Bank of New York now estimates that close to 10 million student loan borrowers became past due on their student loan bills after the pandemic payment pause ended.
This surge in past due and delinquent student loan means that consequences, like wage garnishment and tax refund seizures, could kick in for the first time since 2019 for those who can’t get back on track. In short, the end of Covid-era protections has opened the floodgates to collections, and millions may soon feel the pain in their paychecks.
Rising Student Loan Delinquencies: A Harbinger For Student Loan Wage Garnishment
After a three-year pause, student loan bills are back – and many Americans struggle to keep up. By early 2025, roughly 43% of borrowers with payments due (about 9.2 million people) had not resumed making them, according to a VantageScore analysis. The Education Department reports that delinquency rates have doubled mere months after repayments restarted. In practical terms, millions of borrowers have fallen behind on their student debt obligations.
Why are so many borrowers delinquent? A perfect storm of factors is to blame. Critically, many borrowers had been counting on debt relief that didn’t materialize. The Biden administration’s broad student loan forgiveness plan was struck down by the Supreme Court in 2023, leaving those borrowers on the hook for their full balances. Borrowers who expected $10,000 or $20,000 of their debt to be wiped out suddenly faced the return of monthly payments on the same balances as before – now with additional accrued interest. This dashed hope, and rising living costs have left a segment of borrowers financially unprepared to resume payments. The result has been a sharp uptick in missed payments and delinquencies.
Student Loan Wage Garnishment: A Consequence Of Biden-Era Student Loan Protections Ending
During the pandemic, federal student loan borrowers enjoyed unprecedented protections. Starting in March 2020, the government paused payments and suspended adverse credit reporting, meaning missed payments did not hurt borrowers’ credit. The Biden administration extended additional relief with a one-year on-ramp from September 2023 to September 2024, during which missed payments would not immediately trigger defaults or credit score drops. That on-ramp has ended, and borrowers’ credit reports are no longer shielded from student loan missteps. In other words, the grace period is over, and anyone failing to pay their student loans is once again subject to the usual consequences of delinquency and default.
Several other protections have also wound down. The Fresh Start program, which allowed previously defaulted borrowers to return to good standing, expired around the same time and a recent court ruling blocked the Biden administration’s new SAVE income-driven repayment plan, potentially pushing an additional 8 million borrowers out of forbearance and into repayment status. The end of these policies means late payments are now being reported to credit bureaus, and extended non-payment will lead to default. The Biden-era effort to cushion borrowers from financial harm has effectively sunset, and the consequences are kicking in.
Student Loan Wage Garnishment Exacerbates Credit Score Drop
One of the first signs of trouble for delinquent borrowers is a credit score drop – and, in many cases, a steep drop. After years of relief, the return of credit reporting for student loans has shocked many borrowers’ credit profiles. Some borrowers have seen their credit scores plunge by as much as 200 points once their loans were marked delinquent.
During the pandemic pause and on-ramp, missed payments weren’t reported, allowing credit scores to remain artificially high. Now that those protections have vanished, missed student loan payments are dragging down credit scores nationwide.
Student Loan Wage Garnishment Process
If a borrower remains delinquent for too long, the situation escalates to default – when wage garnishment enters the picture. For federal student loans, default typically occurs when a payment is 270 days past due. At around 90 days delinquent, loan servicers will report the late status to credit bureaus if they haven’t already. However, after roughly 270 days of non-payment, the loan is officially in default and can be handed over to the Department of Education’s collection department. It hasn’t yet hit 270 days since payments resumed, but that will start to hit borrowers in roughly July, Preston Cooper, a senior fellow at the American Enterprise Institute, told me in an interview. That is “the time bomb that a lot of folks are choosing to ignore right now,” he added.
Once a federal student loan defaults, the government has powerful tools to collect – chief among them is administrative wage garnishment. This process allows the Department of Education to order an employer to withhold a portion of a borrower’s paycheck without a court judgment. By law, up to 15% of a defaulted borrower’s disposable pay can be garnished to repay the debt. For example, if a borrower has $500 of take-home pay each week, the government could seize up to $75 every pay period and apply it toward the defaulted loan.
Wage garnishment for student loans bypasses many of the usual consumer protections – it can happen administratively and persist until the loan is taken out of default. Borrowers in default are typically notified of the pending garnishment and given a short window to appeal or enter a repayment agreement. If they fail to act quickly, their employers will be instructed to withhold wages. Notably, the 15% garnishment cap is for federal loans; private student loan lenders must go through courts and are subject to state garnishment limits, often requiring judgments.
Consequences Beyond Student Loan Wage Garnishment
In addition to garnished wages, defaulted borrowers are exposed to other aggressive collection tactics. For example, the federal government can seize your IRS tax refund (including any earned income credit) and apply it to your defaulted student loan balance. It can legally take 100% of federal tax refunds until your debt is paid – a harsh reality for borrowers counting on their refund check. The same goes for certain federal benefits: if you receive Social Security retirement or disability benefits and have a defaulted loan, the government can garnish a portion of those benefits above a certain protected amount. Until recently, only the first $750 per month of Social Security was off-limits, and anything above that could be taken to repay student debt – an amount so low it often pushed seniors with student debt into poverty. In one 2016 analysis by the Student Borrower Protection Center, tens of thousands of older borrowers were found to have been pushed below the poverty line due to Social Security garnishment for student loans.
The Upshot On Student Loan Wage Garnishment
The government’s debt collection machine is revving back up and the consequences of student loan defaults can be severe. Borrowers can significantly reduce the risk of student loan wage garnishment by being proactive and informed. Every borrower’s situation differs, but options exist to prevent the worst-case scenario.
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