On Wednesday, January 7th, the U.S. Department of Education reinstated pre-pandemic collection rules for student loans, enforcing wage garnishment for those who default on federal student loans.
These mandatory collection rules have been on hold since 2020.
According to a report released by the Education Data Initiative in August, currently, 42.5 million Americans carry federal student loan debt totaling nearly $1.7 trillion.
As reported by The Washington Post, the first wave of collection actions began in the week of January 7th, with approximately 1,000 defaulting borrowers expected to receive payment notices, informing them that part of their wages may soon be withheld. The Department of Education will continue to send notifications to more borrowers each month.
Under federal law, borrowers must receive a notice at least 30 days prior to any wage garnishment. During this period, borrowers have various options: they can request a hearing to challenge the garnishment, repay the debt in full, or seek alternative repayment arrangements to avoid default.
Failure to make timely payments over an extended period and an inability to restore good repayment status classifies a borrower as in default.
For most federal student loans, default is triggered by being overdue for 270 days (about 9 months). Once in default, all remaining loan balances become due immediately, giving the federal government increased debt collection rights.
According to the Higher Education Act, the government has the authority to withhold 15% of a borrower’s after-tax income until the loan is resolved or the borrower is no longer in default.
Adem Selita, co-founder of the Debt Relief Company, mentioned that borrowers often underestimate the government’s debt collection capabilities.
One avenue is the Treasury Offset Program, which allows the government to intercept certain federal funds to repay defaulted debts.
Selita explained that “they can utilize the Treasury Offset Program to intercept other federal funds to repay outstanding student loans,” meaning a borrower’s tax refunds or other federal benefits could be used for loan repayment.
In addition, defaulted debts can have long-term credit impacts. Selita stated that missed or late payments are reported to credit bureaus, further burdening the individual economically.
He noted, “In addition to all the above consequences, late payments will also have a negative impact on your credit report, marking you as delinquent, and delinquent payment records may stay on your credit report for up to 7 years.”
Secretary of Education Linda McMahon stated in April 2025 that “American taxpayers will no longer be on the hook for irresponsible student loan policies.”
She emphasized that “the executive branch does not have constitutional authority to forgive debt, and loan balances will not disappear out of thin air; billions of dollars have been shifted onto taxpayers by the previous administration.”
She further explained, “In the future, the Department of Education will work with the Treasury Department to responsibly manage student financial loans in accordance with the law – this is to protect their financial well-being and our nation’s economic future.”
(This article referenced a report from Newsweek)