The Trump Administration will commence garnishing the wages of borrowers in default on their student loans from January, with an estimated 1,000 individuals expected to receive notices during the first week of the new year. This move marks a significant shift, as it will be the first time since the onset of the COVID-19 pandemic in 2020 that borrowers' paycheques are at risk of involuntary withholding, following a period during which collection efforts were paused.
The notices of administrative wage garnishment will gradually increase in number, reflecting a renewed focus on recovering federal student debt. The decision comes after the government resumed its efforts to collect on defaulted federal student loans—typically triggered after 270 days of non-repayment. The US government possesses extensive collection powers over federal debts, including the ability to seize tax refunds, wages, and even Social Security and disability benefits if necessary.
Under an administrative wage seizure, the government can instruct non-federal employers to withhold a portion of an employee's income to pay off outstanding student loans. If the government expands its wage garnishment efforts, millions of Americans could see a reduction in their take-home pay, adding further financial strain to households already grappling with rising costs.
Millions of Borrowers to Face Added Financial Pressure
Over 42 million Americans hold student loans, with total debt exceeding $1.6 trillion (£1.1 trillion). In April, the US Education Department reported that over 5 million borrowers were in default, and 4 million were delinquent. The department has indicated that the number of defaulted student loan borrowers could soon rise to 10 million.
Earlier this year, the government also resumed the Treasury Offset Program, which collects defaulted debts by seizing federal and state payments. Critics argue that initiating wage garnishment will add significant financial strain on borrowers already coping with higher living costs.
Specifically, the US Education Department can seize up to 15% of a student loan borrower's after-tax income to put towards their debt. According to existing laws, borrowers must be left with at least 30 times the federal minimum hourly wage or $7.25 (£5.36) a week, which amounts to $217.50 (£160.84), as explained by higher education expert Mark Kantrowitz.
'As millions of borrowers sit on the precipice of default, this administration is using its limited resources to seize wages instead of defending borrowers' right to affordable payments,' said Persis Yu of Protect Borrowers.
Borrowers Face More Changes in the Near Term
Student loan borrowers will face further changes in the coming months. US President Donald Trump's 'One Big Beautiful Bill Act' introduced new limits on the amount students can borrow for federal graduate loans and restrictions on parental borrowing to cover tuition. The bill also eliminated some deferments on student debts and established a limited set of repayment options.
Betsy Mayotte, founder of The Institute of Student Loan Advisors, stated that although borrowers expected wage garnishment, the timing is unfortunate.
'It will coincide with the increase in healthcare costs for many defaulted borrowers,' Mayotte said, referring to premium hikes for Affordable Care Act health insurance due in 2026. 'The combination will almost certainly place significant economic strain on low- and middle-income borrowers.'
Consumer advocates advise student loan borrowers to contact the government's Default Resolution Group and explore options to become current on their debts to avoid wage garnishment. They can also opt for loan rehabilitation as an alternative measure.
