At a Glance
- The Education Department has paused involuntary collections on defaulted federal student loans
- Wage garnishment and tax refund seizures will remain on hold indefinitely
- Over 5 million borrowers were in default as of September
- Why it matters: Millions avoid immediate financial penalties while new repayment options are finalized
The Trump administration has reversed its plan to restart wage garnishment for student loan borrowers in default, keeping pandemic-era protections in place while the Education Department overhauls the federal student loan system.
The department announced Friday that involuntary collections-including Administrative Wage Garnishment and the Treasury Offset Program-will remain suspended. This decision affects millions of Americans who are at least 270 days behind on their federal student loan payments.
Collection Pause Extended Indefinitely
Nicholas Kent, the department’s higher education chief, said the delay will allow time for significant improvements to the student loan system before collections resume.
“The Department determined that involuntary collection efforts such as Administrative Wage Garnishment and the Treasury Offset Program will function more efficiently and fairly after the Trump Administration implements significant improvements to our broken student loan system,” Kent said in a statement.
The department had previously announced plans to restart wage garnishment in January, with initial notices sent to 1,000 borrowers during the week of January 7. Tax refund seizures for defaulted borrowers were set to resume last spring.
Scale of the Problem
Recent department data shows the scope of student loan defaults:
| Metric | Number |
|---|---|
| Borrowers in default (September) | 5 million+ |
| At risk of default this year | Millions more |
| Initial wage garnishment notices | 1,000 borrowers |
When borrowers default, the federal government can seize up to 15% of their disposable pay through wage garnishment and intercept federal tax refunds. These penalties were suspended during the pandemic payment pause.
New Repayment Structure
The department is creating a simplified repayment system with just two options:
- A standard repayment plan
- An income-driven plan that lowers payments based on borrower earnings
These new plans are scheduled to launch July 1. The delay in collections gives borrowers time to evaluate these options before facing penalties.
Last month, the department eliminated the SAVE Plan, an income-driven repayment option created under former President Biden. The plan had offered lower payments and faster loan forgiveness but was blocked by a federal judge after Missouri and other states challenged it in court.
Congressional Mandate
Congress ordered the department to overhaul repayment plans last year, citing concerns that the current system had become too confusing for borrowers. The legislative action came after years of criticism about the complexity of income-driven repayment options.
The department has not announced when involuntary collections will resume, saying only that the pause will continue while implementing the new repayment structure.
Advocate Response
Student loan advocates praised the administration’s reversal. Aissa Canchola Bañez, policy director at the nonprofit Protect Borrowers, warned that resuming collections would have harmed millions.
“The administration’s plans would have been economically reckless and would have risked pushing nearly 9 million defaulted borrowers even further into debt,” Bañez said.
The announcement comes as families face rising costs for child care, housing, and everyday expenses. The department emphasized its commitment to helping borrowers resume regular payments through clearer and more affordable options.
Key Takeaways
- Wage garnishment and tax refund seizures remain suspended for defaulted student loan borrowers
- Over 5 million Americans currently in default avoid immediate financial penalties
- New simplified repayment plans launch July 1 with just two options
- The department has not set a date for when involuntary collections will restart
- The delay allows borrowers to evaluate new repayment options before facing penalties
