Student loan borrowers have some terrible news: starting January 7, the Trump Administration will begin garnishing the wages of student loan borrowers whose current debt is in default, the Department of Education has announced. The Education Department expects the first wave of wage garnishment notices will be sent this week, with notices of monthly increases. It is the latest step by the Trump administration to get federal student loan borrowers back into repayment after an extended forbearance period that started during the pandemic.
More than three million federal student loan borrowers recently fell into default status, meaning they haven’t made payments in more than 270 days, and many more were seriously delinquent on payments, according to Education Department data.
Last month, the Trump administration entered into a settlement agreement with the state of Missouri and other GOP-led states that had brought a legal challenge over the SAVE plan, a Biden-era repayment program that offered reduced payments and fast-tracked student loan forgiveness.
That settlement is still pending court approval, but once it is finalized, millions of borrowers with student loans enrolled in SAVE who have been in a no-payment forbearance for more than a year will likely be forced back into repayment.
“The Department will not permit anyone else to enroll in SAVE (or the plan that SAVE replaced, called REPAYE), and it will deny any pending applications for SAVE,” under the terms of the settlement, explained the National Consumer Law Center in a blog post last month.
“The Department will work to move borrowers already enrolled in SAVE out of SAVE and into a different repayment plan. The Department will not forgive any loans through the SAVE Plan (or through the plan that SAVE replaced, called REPAYE).
The Department will not implement any provisions of the 2023 repayment rules that created the SAVE plan with one exception: it will implement a provision that allows certain types of deferments and forbearances to count as qualifying time toward loan forgiveness in income-driven repayment plans.
Defaulted borrowers who haven’t made a payment in more than 360 days or taken action to resolve their status could see up to 15 percent of their wages automatically deducted from their paychecks. In addition, the government can withhold money from borrowers’ tax refunds and other federal benefits, said Sarah Sattelmeyer, who works in the higher education initiative at New America, a liberal-leaning think tank.
“If you have $10,000 of debt and your federal tax refund is $3,000, the government can withhold that whole amount,” Sattelmeyer said. Borrowers do have options. Those who want to object to wage garnishment, whether it is on grounds of an error on their account or their financial or employment status, can request a hearing from the Education Department.
Defaulted borrowers can also choose to negotiate the terms of their debt. One option for doing so might be to consolidate their loans, which replaces the defaulted loans with a new one.