The new year typically brings new hope, but that’s not the case for millions of federal student loan borrowers who may be facing wage garnishment in 2026.
After a multi-year pause for the pandemic, the federal government will resume wage garnishment next year for borrowers who have defaulted - not making scheduled payments for 270 days - on their federal student loans.
The prospect of wage garnishment can be a scary one, but it shouldn’t stop you from taking action, said Leslie H. Tayne, a debt expert and founder of New York-based Tayne Law Group.
“A lot of borrowers who are in default avoid their lenders due to shame or not having income to make the payments, but communication with debt repayment is key,” Tayne told The Independent by email. “A lot of the time, the lender can offer a helpful solution that can assist the borrower in getting back on their feet.”
Tayne hints at an important part of the coming wave of wage garnishments for an estimated 5.3 million borrowers, according to public policy think tank American Enterprise Institute: You have options.
Why wage garnishment is resuming and what you need to know
During the pandemic, the Biden administration put federal student loan payments on hold and suspended wage garnishment. Now that the economic sting of the pandemic era is gone, the federal government has decided to move forward with its long-standing wage garnishment policy, said Kevin Ladd, COO of college funding site Scholarships.com.
“The pause was initiated as a means of relief to borrowers during the Covid-19 pandemic amid the shutdown, along with a number of other measures,” Ladd told The Independent by email.
“The pause was public-health- and economic-relief-driven and was slow to resume even after the fall of 2023, resumption of general payments. Resuming garnishment now is considered to be part of returning to standard federal collection practices.”
Who faces wage garnishment?
Most federal student loan borrowers who have gone at least 270 days without payment have entered default, which can trigger wage garnishment, according to the Department of Education. “Most” includes borrowers with one or both loans from the William D. Ford Federal Direct Loan Program or the Federal Family Education Loan Program.
Wage garnishment should never catch you by surprise; it doesn’t appear overnight. The Department of Education is supposed to let you know by letter at least 30 days in advance that the garnishment is happening, according to the department.
How much is wage garnishment?
The Department of Education can garnish up to 15 percent of your paycheck to help pay off a defaulted loan. By rule, you have to continue your wage garnishment “until your defaulted loan is paid in full” or you resolve your default status, the education department said. That second part is the key - you have options for managing and, in some cases, stopping wage garnishment.
If you can’t halt wage garnishment, that may not be a bad thing for certain borrowers, said Mark Kantrowitz, president at PrivateStudentLoans.guru. Some may even pay less than what they’d pay if they weren’t under wage garnishment.
“Often the wage garnishment is less than what the borrower would have paid under an income-driven repayment plan,” he told The Independent by email.
Can you avoid wage garnishment?
Yes, you can avoid wage garnishment in one of three main ways: loan payoff, loan rehabilitation, and loan consolidation.
Pay off defaulted loan in full
You can end wage garnishment by paying off the entire balance of a defaulted loan, although this is probably not a realistic solution for most borrowers.
Rehabilitate loans
You’re allowed to set up a loan rehabilitation payment plan with your loan holder to exit garnishment status. The payment plan has very specific rules. You have to agree to make “nine voluntary, reasonable, and affordable monthly payments” during a stretch of 10 consecutive months, according to the Department of Education.
Consolidate loans
The final option to avoid wage garnishment is to consolidate your loans through the education department’s Direct Consolidation Loan program. In this scenario, the education department will pay off each loan balance witha consolidated loan that requires a single payment. You’ll have to repay your new consolidated loan through an income-driven repayment plan, which requires payments that are based on your income rather than a set amount.
If you can make three consecutive payments on a defaulted loan, then you can choose any loan you want to pay back your consolidated loan, according to the education department.
However, any loans already in wage garnishment are not eligible for consolidation, the Department of Education notes, so it’s important to take action before your garnishment begins and resolve it as quickly as possible
Don’t wait to take action
As out-of-control as you may feel about your finances if you’re in default and facing wage garnishment, embracing what you can control - and doing it as early as possible - is critical. Reach out to your loan holder if you’re worried about default. You can also check your Department of Education account.
“It's best to get ahead of it and address the situation as best you can. Contact the lender and learn what options you may have,” Ladd said. “Discuss your financial situation with them and determine whether you are eligible for income-driven repayment plans. Even if you are not currently in default, this may keep you out of that undesirable situation.”
If you can’t avoid garnishment, then you may need to turn to your monthly budget to find ways to reduce costs to free up space, Tayne said.
“The best thing to do when wages are being garnished is to try to lower your expenses and possibly explore consolidation options and revisit your budget, knowing that you’ll have less income coming in as a result,” she said. “This may require major lifestyle shifts, such as moving into a new, more affordable home, or to a more affordable part of town, or swapping a vehicle with a lofty monthly payment for a more affordable option."
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