The Department of Education announced Friday it is delaying efforts to collect defaulted federal student loan debt through wage garnishment, tax refund seizure, and benefit offset. This marks a reversal of recently announced policy.
Collections Pause and Reform Efforts
The department stated the delay is intended to provide defaulted borrowers additional time to rehabilitate their loans. It will also allow the department to implement reforms stemming from the One Big Beautiful Bill Act, passed by Congress last July. This Act includes changes to borrowing and repayment options, such as reducing the number of available repayment plans and adjusting borrowing limits for some graduate students.
Previously, the Trump administration had planned to resume wage garnishments beginning the week of January 7. Education Secretary Linda McMahon indicated that the department had already collected approximately $500 million from borrowers, and wage garnishment was to be the next step. However, McMahon stated earlier this week that “there is a pause” on wage garnishing.
Default and Collection Processes
Borrowers are considered delinquent after missing a single payment and enter default after approximately nine months of non-payment – 270 days. At that point, the government is authorized to garnish up to 15% of a borrower’s paycheck, as well as intercept federal and state tax refunds, Social Security benefits, and other federal payments.
According to student loan expert Robert Farrington, a single payment can remove a borrower from default status and restart the nine-month clock.
McMahon did not specify the duration of the current pause on wage garnishment.
Frequently Asked Questions
What happens if I miss a student loan payment?
Borrowers are considered delinquent when they miss a single payment, and are in default after 270 days, or about nine months, of non-payment.
What is the One Big Beautiful Bill Act?
The One Big Beautiful Bill Act, passed in July, makes several changes to borrowing and repayment of federal student loans, including reducing the number of repayment plans, lowering caps on borrowing limits for some graduate students and implementing a new income-driven repayment plan.
Can the government take money from my tax refund?
Yes, after a borrower enters default, the federal government can withhold money from federal and state tax refunds, Social Security payments and other federal benefits.
As the Department of Education implements changes to student loan repayment, it remains to be seen how long the pause on collections will last and what impact these reforms will have on borrowers and the overall student loan system.
