The U.S. Department of Education confirmed that the Trump administration will begin garnishing the wages of federal student loan borrowers in default early in January. This development marks a significant shift away from the prolonged relief measures that had suspended most forms of federal collection since the early days of the COVID-19 pandemic. On Tuesday, the Department confirmed to CNBC that it is reactivating the wage garnishment program, a collection tool that allows the government to redirect a portion of a borrower’s earnings toward unpaid student debt without requiring a court order.
More than 5 million borrowers are already in default, and the Department has indicated that this number could rise to around 10 million in the coming months as repayment enforcement resumes. Many of these borrowers have been out of the repayment system for several years, making the coming transition particularly challenging.
The history of federal wage garnishment for student loans stretches back to the 1990s, when the Higher Education Technical Amendments of 1991 authorized the government to collect defaulted student debt directly from paychecks. Under this system, the Education Department could seize up to 15% of a borrower’s disposable income once loans entered default and collection efforts failed to yield voluntary payment. This established a durable, if controversial, enforcement mechanism that subsequent administrations have alternately expanded or restrained depending on economic and political priorities.
In the decades since, wage garnishment has been both a revenue-recovery tool and a symbol of the federal government’s reach into personal finances. In 2019, for example, more than 2.4 million borrowers saw funds withheld from either their paychecks or tax refunds, amounting to almost $4.6 billion collected that year. The Biden administration suspended such activities in March 2020 under emergency provisions, citing widespread unemployment and economic uncertainty. That pause lasted far longer than most observers expected, with borrowers resuming payments only gradually under temporary assistance measures that expired last year.
The Trump administration’s decision to restart wage garnishment underscores its broader view that repayment discipline must be restored to stabilize the federal lending program. Defaulted student loan debt currently exceeds $150 billion, according to the Federal Student Aid office, with about half of that amount overdue by more than a year. The Department argues that renewed enforcement, though unpopular, is necessary to preserve taxpayer funds and maintain trust in a system that subsidizes college access through federally backed loans.
For borrowers, the implications are considerable. Employers will receive formal notices requiring them to withhold a portion of wages once the program restarts. Borrowers can contest or negotiate the garnishment but only within limited timeframes. Financial advisers suggest that affected workers review income-driven repayment options or pursue loan rehabilitation programs before the garnishment process begins, as those alternatives can halt or reduce income deductions. These procedures, however, often involve lengthy documentation and may require borrowers to remain in compliance for nine consecutive months before returning to good standing.
Economists note that large-scale garnishments can ripple through consumer spending and local economies. When disposable income tightens among lower-income households, retailers, landlords, and service providers often see slower payment flows. Historically, periods of aggressive debt collection have coincided with broader declines in disposable-income growth. A 2018 Federal Reserve study found that borrowers in default were disproportionately located in regions already struggling with wages below the national median.
Business analysts see the policy’s reactivation as both inevitable and risky. While it may boost near-term federal recoveries, it also pressures millions of workers who remain financially fragile. The timelines for restarting garnishments are not immediate for most employers because federal notifications are staggered through multiple payroll cycles. However, by late January, many defaulted borrowers will likely notice reduced take-home pay.
As one policy scholar at the Brookings Institution observed after earlier collection rounds, garnishment often functions less as a penalty and more as an administrative correction that reasserts compliance with loan terms. But the social and economic strain it creates is real and visible. For affected borrowers, the new year may bring a harsher reminder that the federal student loan system, paused for nearly half a decade, has fully reawakened.
