Education Department to Begin Taking Wages of Student Loan Borrowers in Default

The Harry Elkins Widener Memorial Library at Harvard University in Cambridge, Massachusetts. (Sophie Park/Getty Images)

Key Points

• The U.S. Department of Education will begin garnishing wages from approximately 1,000 defaulted student loan borrowers early next year.
• Federal agencies can withhold up to 15% of an employee’s income for delinquent debt, with default occurring after 270 days of non-payment.
• As of June, 5.3 million borrowers defaulted on $117 billion in student loans, with 4.3 million more nearing default.

The U.S. Department of Education will begin to garnish wages early next year from about 1,000 individuals who have defaulted on their student loans, a number that represents a fraction of the more than five million borrowers currently in default.

Notices will be sent out to this initial group of 1,000 the week of Jan. 7, the department’s press office confirmed Tuesday. Notices to others in default will increase in scale monthly after that.

The news has been expected since April, when the Education Department said it would resume collecting payments on defaulted student loans.

According to the Education Department, the government will garnish wages “only after student and parent borrowers have been provided sufficient notice and opportunity to repay their loans.”

By law, federal agencies are able to order a nonfederal employer to withhold up to 15% of an employee’s income to pay a delinquent debt, according to the U.S. Treasury Department’s Bureau of the Fiscal Service. Borrowers are considered to have defaulted if they failed to make payments for 270 days.

Getting former students to pay back their loans has been a priority for President Donald Trump’s administration, a sharp reversal from policies under former President Joe Biden, who sought to forgive loans for millions of struggling borrowers. Biden’s efforts were thwarted by a Supreme Court ruling and the Trump administration.

During the pandemic, the Office of Federal Student Aid had allowed borrowers to pause payments on their student loans. That ended in August 2023 and monthly payments were once again required as of October that year. But borrowers were given an “on-ramp” to repay through September 2024—allowing those in default for more than 90 days to delay consequences such as negative credit reporting and default, according to a September report by the nonpartisan Congressional Research Service.

As of the end of June this year, about 5.3 million borrowers were in default on their student loans for about $117 billion, CRS said. More worrisome is that another 4.3 million borrowers were 181 to 270 days delinquent on their loans and in danger of default —a result that could nearly double the number and dollar amount of defaults by late this year or early next, the research group said.

Write to Abby Schultz at abby.schultz@barrons.com