Wage Garnishment is Delayed as a Student Loan Default Record
The Department of Education is delaying its plan to automatically restart garnished wages, government benefits and tax refunds from struggling student loan borrowers.
The department announced its decision Friday, saying the extra time will allow the agency and borrowers alike to prepare for upcoming changes to the student loan repayment system as part of President Donald Trump’s One Big Beautiful Bill Act.
“The department has determined that automatic collection efforts … will work more effectively and efficiently after the Trump administration made significant improvements to our broken student loan system,” Under Secretary of Education Nicholas Kent said in the announcement.
The controversial debt collection practice has been suspended since the early days of the pandemic. After nearly six years, the Trump administration initially said it would begin garnishing wages again this month but ultimately decided against it.
“There’s a moment in that right now,” Education Secretary Linda McMahon told reporters Tuesday during a visit to Rhode Island. The Ministry of Education officially announced the change on Friday but did not say how long the suspension would last.
The department did not respond to Money’s requests for more information.
Defaults to high records
About 43 million Americans have student loan debt. Of them, about 8.8 million – or 20% – have not paid for at least 270 days, thus defaulting on the loan, according to the report. i advocacy group Protect Borrowers.
Protect Borrowers has led a coalition of organizations urging the Department of Education to cancel its salary garnishment plans.
“The decision to resume wage garnishment against millions of borrowers in the midst of a growing insolvency crisis for hard-working families is heartbreaking and unnecessary,” the groups wrote in a Jan. 7 letter to McMahon.
According to Protect Borrowers, a credit union borrower has defaulted every nine seconds since Trump took office.
McMahon blames the increase in defaults on the failed efforts of the Biden administration to forgive student loans. He says because of that, it caused so much confusion that “people just stopped paying.”
“They didn’t know if they would be forgiven for the money they borrowed or how much they would be forgiven,” he said last week in Rhode Island. “We’ve had an incredible drop in people paying.”
Missed student loan payments have become such a common issue that they affect the average credit score of all Americans, according to FICO.
For borrowers, the financial consequences of defaulted student loans are devastating. Defaults appear on their credit reports, usually totaling a credit score of 100 points or more. At the same time, all balances and interest come due, the borrower is ineligible for federal student aid, the loan servicer can sue the borrower and more.
At least for now, default borrowers won’t have to worry about their income being automatically garnished by the federal government.
Options for default borrowers
Trump’s One Big Beautiful Bill Act makes major changes to student loans, most of which take effect in July.
Under the new law, defaulting borrowers will be allowed to repay their loan twice in their lifetime. Previously, defaulted loans were renewed only once.
Loan repayment is a long but important step that struggling borrowers can take to get their loan back. In most cases, the process involves contacting the loan officer to set up a nine-month repayment plan based on 10% to 15% of the borrower’s discretionary income.
After nine on-time payments, the loan is considered renewed, the borrower’s state benefits are reinstated, and the default will no longer appear on their credit reports (although the missed payment history will remain).
The only way to get your defaulted loan back into good standing is to combine it with another eligible student loan. However, this method will not remove the default from the borrower’s credit report.
Once the loan is in good standing, borrowers will be able to join the Repayment Assistance Program next July. Under the new plan, monthly payments will be between 1% and 10% of the borrower’s adjusted gross income. After 30 years of on-time payments, the outstanding balance is forgiven.
The Department of Education is encouraging borrowers to understand their delinquent loan options before the changes begin this summer.
More from Mali:
Best private student loans for January 2026
Is Your Degree ‘Professional’? The Answer Will Determine How Much You Can Borrow
New Federal Loan Rules Could Push Many Master’s Degree Borrowers into Private Student Loans
