Millions of student loan borrowers could soon see their paychecks shrink as the federal government prepares to restart wage garnishment for people in default — and the rules are stricter than many may realize, experts say.
The policy, which was paused starting during the COVID pandemic, is set to come back into force the week of Jan. 7. An initial batch of about 1,000 notices will go out to people with defaulted student loans, according to the Education Department. More notices are set to go out every month moving ahead.
Under federal law, the government can seize up to 15% of a borrower’s disposable pay if they have defaulted on federal student loans — without ever going to court.
Disposable pay goes well beyond base salary.
It includes “salary, overtime, bonuses, commissions, sick leave and vacation pay,” Persis Yu, deputy executive director and managing counsel at the Student Borrower Protection Center, told The Post this week.
The income shield for low-wage workers is extremely limited, Yu added.
Federal rules protect only the first $217.50 a week — equal to 30 times the federal minimum wage — leaving anything above that amount vulnerable to garnishment, Yu explained, noting that the threshold is “far below many states’ minimum wages.”
That means borrowers earning close to the poverty line can still have wages taken.
The collection tool, known as administrative wage garnishment, allows the federal government to bypass the courts entirely.
“No court order is required for the federal government to garnish a borrower’s wages,” Yu said.
Thirty-day windows
Borrowers are supposed to receive a written notice giving them 30 days to respond before garnishment begins.
During that window, they can try to set up a payment plan or raise objections.
But many borrowers never see the warning, according to Yu.
“Notably, many borrowers never actually receive this notice because the government lacks good contact information for many borrowers,” the expert said.
Once the 30-day period expires, the government contacts the employer directly.
“After the 30 days expires, the employer will be sent a wage garnishment order that will require them to send the government a portion of the worker’s pay by the next pay day,” Yu said.
Employers who fail to comply can be fined, and garnishment can begin with the next paycheck.
Loan ‘rehad’
There are ways to stop wage garnishment — but they are not available to everyone.
“Prior to garnishment starting, the borrower may be able to rehabilitate or consolidate their loans to get out of default and avoid garnishment,” Yu said.
Loan rehabilitation requires a series of on-time payments, while consolidation replaces defaulted loans with a new loan. Both options come with restrictions.
“Borrowers may only rehabilitate one time, so they may have exhausted this option, or if there is a judgment on their loan, then they will not be eligible,” Yu said.
Some borrowers may also be able to negotiate a payment plan directly or challenge garnishment.
“They can also challenge the garnishment based upon a defense — they don’t owe it, they are eligible to have their loan cancelled — or on the basis of financial hardship,” Yu said.
Default dilemma
One common misconception is that borrowers in default can simply enroll in an income-driven repayment plan to reduce their payments.
They can’t — at least not without first exiting default.
“If a borrower is in default, they are not eligible for an income-driven repayment plan without getting out of default first,” Yu said.
That restriction is becoming more consequential after the Trump administration agreed to vacate parts of “SAVE” repayment regulations.
The SAVE Plan was a Biden administration income-driven repayment program that lowered monthly student loan payments and would have allowed some borrowers in default to access affordable repayment without first getting out of default.
The Trump administration has moved to eliminate the plan — making it harder for defaulted borrowers to avoid collections like wage garnishment.
“Part of the SAVE regulations … would have allowed borrowers in default to access income-based repayment,” Yu said.
With wage garnishment set to resume in early 2026, borrowers who have lost touch with their loan servicers face the greatest risk.
Once garnishment starts, the money comes out automatically — and stopping it is far harder than preventing it.
Borrowers in default would be well advised to update their contact information, open every notice and act quickly before the government comes straight for their paychecks, according to experts.
Trump put in place a moratorium on student loan payments during some of the darkest days of the COVID pandemic in 2020. Biden re-upped the policy multiple times amid pressure from his liberal base, permitting people with defaulted student loans to benefit from a “fresh start” program that spared them from the seizure of their wages, tax refunds and Social Security benefits.
“The Biden Administration misled borrowers: the executive branch does not have the constitutional authority to wipe debt away, nor do the loan balances simply disappear,” Education Secretary Linda McMahon previously said.
