Americans with student loans who are behind on their payments could face having their wages garnished and other serious financial consequences now that the Trump administration restarted collections earlier this month.
Repayments on student debt had been paused for five years since March 2020, when the COVID-19 pandemic disrupted the U.S. economy and caused unemployment to soar. Nearly 43 million borrowers owe a total of more than $1.6 trillion in student debt, according to the Department of Education.
Of that number, more than 5 million are in default on their loans, meaning they havent made a monthly payment in more than 360 days, the agency says. An additional 4 million borrowers are in late-stage delinquency, having not made a payment in at least 91 days. The DOE expects that 10 million, or 25% of student borrowers, could be in default on their loans in a matter of months.
In the first three months of the year, the delinquency rate for student loans jumped from less than 1% to nearly 8%, according to recent data from the Federal Reserve Bank of New York.
Older Americans are in worse shape when it comes to repaying student debt than younger borrowers. Although Americans over 50 years of age make up just 20% of those with outstanding college loans, they account for 33% of delinquencies, according to Oxford Economics which notes that younger borrowers are in relatively better shape.
Student loans differ from other types of consumer debt in that there is no statute of limitations on collections, meaning the government can pursue punitive actions for defaulted loans indefinitely, noted Persis Yu, deputy executive director and managing counsel at the Student Borrower Protection Center.
“Its so much worse than just about any other financial product,” Yu told CBS MoneyWatch. “Its a really small universe of things that have these harsh penalties.”
And because collections were paused for five years due to the pandemic, some student loan borrowers may have forgotten about the severe financial consequences of defaulting. “Its left the collective consciousness,” she said.
Heres what to know about the potential repercussions of defaulting on student debt, including when your wages can be garnished.
Student loans can feel like a financial burden that never ends. Even after you finish school, the bills continue to arrive month after month. And if you fall behind on your payments, you may be worried about your wages being garnished.
So can student loans garnish your wages if you default? Unfortunately, the answer is yes Here’s what student loan borrowers need to know about wage garnishment and some steps you can take if you receive a notice.
What Is Wage Garnishment for Student Loans?
Wage garnishment is when your employer withholds part of your paycheck and sends the money to pay off your debt It can happen if you default on federal student loans from the William D. Ford Federal Direct Loan Program or Federal Family Education Loan (FFEL) Program. Private student loans can also garnish wages in some cases
The federal government can order your employer to withhold 15% of your disposable pay, which is the amount left after deducting taxes and certain benefit contributions. But there are limits:
- If you make minimum wage, your employer can’t garnish anything.
- The garnishment can’t cause your income to fall below 30 times the federal minimum wage per week.
So for 2022, the most that can be garnished from a paycheck is the lesser of 15% of disposable pay or 30 times $725 per hour (or $21750 per week).
When Can Student Loans Garnish Wages?
Wage garnishment happens only if you go into default, which means you fail to make payments for 270 days. It won’t occur if you’re still in school or during grace periods, deferments, or most forbearances.
But interest and fees will continue accumulating, making the amount you owe grow larger. That’s why it’s important to apply for deferments or forbearances if you’re having trouble making payments. Stay in touch with your student loan servicer to discuss options and try to avoid default if possible.
However, if you do default on federal student loans, the entire balance will become due immediately. The government can refer your account to a collection agency and eventually garnish your wages along with taking your tax refunds and part of certain federal benefit payments, such as Social Security.
How Do I Know If My Wages Will Be Garnished for Student Loans?
Before the government can garnish your paycheck, you’ll receive a few notices:
-
Final demand letter: This is the initial notice that your federal student loan is in default. You have 30 days to make arrangements before collection efforts can begin.
-
Notice of proposed wage garnishment: This warns you that the government plans to send a garnishment order to your employer in 30 days if no payment agreement is made.
-
Employer wage garnishment order: This legally requires your employer to withhold and pay a portion of your earnings toward your defaulted federal student loans.
Once the order is sent, wage garnishment will begin. The amount withheld will be sent to the Debt Collection Service to be applied to your student loan balance.
Are There Any Protections From Wage Garnishment?
There are a few situations where your wages can’t be garnished for student loan payments:
-
Your income falls below the poverty line based on your family size. For 2022, the poverty line for a single person household is $13,590.
-
You’ve filed for bankruptcy and your student loans have been completely discharged. However, it’s very difficult to discharge federal and most private student loans through bankruptcy.
-
You’re receiving federal benefits like Social Security, disability, or veterans benefits. However, the government can garnish up to 15% of any amount that exceeds the poverty line.
-
You work for the federal government. Certain state and local government workers may also be protected.
How Can I Avoid Wage Garnishment for My Student Loans?
To avoid reaching the point of wage garnishment, stay in contact with your student loan servicer and know your repayment options, such as:
-
Deferment or forbearance if you’re facing financial hardship and unable to make your scheduled payments. Interest may continue to accrue but this will keep your account in good standing and prevent default.
-
Income-driven repayment plans like PAYE or REPAYE, which cap your monthly payments at a percentage of your disposable income. Your payment could be as low as $0 per month.
-
Student loan consolidation to combine multiple federal loans into one new loan with a single payment. This can help simplify payments and may extend your repayment term to lower the monthly cost. Consolidation also allows you to switch to income-driven repayment.
-
Student loan forgiveness programs like Public Service Loan Forgiveness if you work in public service or Total and Permanent Disability Discharge if you’re unable to work due to a disability.
If you’ve already defaulted, you have a few options to resolve the default and stop wage garnishment:
-
Loan rehabilitation: Make 9 on-time payments over 10 months and your federal student loans will return to good standing. Collection costs may be added.
-
Federal loan consolidation: Your existing defaulted federal loans will be paid off and replaced with a new consolidation loan. You’ll need to agree to repay it under an income-driven plan.
-
Payment in full: Come up with a lump sum to pay off your defaulted student loan balance in full. This may not be realistic for most borrowers.
-
Settle: Offer less than you owe to settle your debt. The settlement amount and terms vary. This will remove the default from your credit report.
What Should I Do If I Get a Wage Garnishment Order?
Don’t ignore any notices about possible wage garnishment – call your servicer immediately to discuss your repayment options. Act quickly, because you may only have 30 days to arrange payments before the order is sent to your employer.
If it’s too late, contact your servicer and employer right away when you receive the garnishment order. Explain your situation and find out when the deductions from your paycheck will start and how much will be taken.
Ask if it’s possible to adjust the payment amount or frequency. You may need to complete a form to reduce the amount withheld if it would cause financial hardship.
You also have the right to request a hearing to appeal the wage garnishment if you believe there’s a reason it should be stopped. But you’ll need to request the hearing in writing within 30 days of receiving the order.
Unfortunately, there’s no way to completely stop federal student loan wage garnishment unless you enter into a repayment agreement, satisfy the debt, or prove the garnishment would cause financial hardship.
Don’t Let Your Student Loans Reach Wage Garnishment
Wage garnishment can make a difficult student loan situation even worse, but you have options. Stay in touch with your servicer, pursue protections if you’re facing hardship, and be proactive to avoid default in the first place.
If you already have a garnishment order, act quickly to get into an affordable payment plan. With the right strategy, you can keep your student loan balance in check without the stress of seeing your hard-earned wages deducted from your pay.
How much can be withheld from your paycheck?
A lender may garnish up to 15% of your disposable pay, but must leave borrowers with the equivalent of 30 times the federal minimum hourly wage of $7.25, or $217.50 per week. That applies even if a borrower resides in a state where the minimum wage is higher than the federal level.
Can other assets be garnished?
Yes. In addition to wages, the federal government may also seize tax refunds and Social Security retirement and disability benefits when loans are in default.
If youve already filed your taxes and received a refund, its protected, Nancy Nierman, assistant director of the Education Debt Consumer Assistance Program in New York, told CBS MoneyWatch. “But youd be on notice if you asked for an extension,” she explained.
The government or a lender would likely have to take a borrower to court in order to target other assets.
“That would entail getting a judgment and doing some kind of court intervention, and those are relatively rare,” Nierman said.
Can Student Loans Garnish My Wages? – Your Bankruptcy Advisors
FAQ
Can student loans cause wage garnishment?
Yes. Borrowers in default will receive a 30-day notice before their wages are garnished, a spokesperson for the Education Department told CNBC. During that period, you should have the option to have a hearing before an administrative law judge, Kantrowitz said.
What happens if you never pay your student loans?
What is the most they can garnish from your paycheck?
Federal law limits wage garnishments to 25% of your disposable income (15% for federal student loans) or the amount exceeding 30 times the federal minimum wage, whichever is less.
Can student loans take your home?
The federal government won’t take your home because you owe student loan debt. However, if you default and the U.S. Department of Education cannot garnish your wages, offset your tax refund, or take your Social Security Benefits, it may sue you.Apr 29, 2025