The U.S. Department of Education announced on April 21, 2025, that it would restart collections on defaulted federal student loans starting May 5, ending a five-year pause that began during the COVID-19 pandemic. This is a significant policy shift, reinstating wage garnishments, tax refund intercepts, and Social Security benefit withholding for millions of borrowers who have defaulted on their payments. With 5.6 million defaulted borrowers and delinquency rates rising, the measure has come under fire for issues of fiscal responsibility, overloading taxpayers, and the level of borrower protection.
Mechanisms of treasury offset program and wage garnishment
The Department’s Treasury Offset Program will tap an automated deduction system applied to government payments like tax refunds and Social Security benefits to recover defaulted debt. Starting in May, defaulted borrowers will get 30-day advance notices of planned collections, followed by wage garnishments beginning in summer 2025. The federal law enables the government to collect no more than 15% of a borrower’s disposable income without a lawsuit, collecting payments directly from employers and sending them to the Department of Education.
This state and federal employee administrative garnishment is applied, but workers in the private sector are equally at risk. For instance, a worker who makes $500 a week can have $75 taken out of every paycheck indefinitely until the debt is paid. While employers cannot fire workers solely because they are subject to garnishment, the economic burden to families—especially low-income families that depend on tax credits such as the Earned Income Tax Credit—would be significant.
Increasing default rates and borrower vulnerability
Federal records paint a grim picture: only 38% of the borrowers are up to date on payments, yet 35% are at least 60 days behind. 4 million borrowers also linger in default short of disaster, having paid 91 to 180 days overdue. Defaults are registered after 270 days overdue, which brings with them severe penalties like tarnished credit ratings, loss of federal student aid eligibility, and penalties under law.
Activists caution that resuming collections would deepen financial hardship for vulnerable borrowers. The National Consumer Law Center and others, such as TICAS, contend that wage garnishment and benefit offsets disproportionately affect low-income workers, who might be unable to handle intricate repayment mechanisms. combined with reported staffing shortages at loan servicers, seeking timely help has become more difficult.
Options for borrowers to avoid garnishment
The Department states that delinquent borrowers can suspend collections by enrolling in loan rehabilitation programs or income-driven repayment (IDR) plans. Nine on-time, unpaid payments over a ten-month period is needed before this process places the loan in the non-default status. In between, the reformed IDR sign-up process—as it is scheduled to launch in May—is intended to make enrollment easier by prohibiting annual recertification and automating income determination based on tax return information.
Borrowers are also allowed to ask for a hearing within 30 days of receiving notice of garnishment. A valid defense involves establishing that the debt is invalid, the garnishment level is in excess of legal limits, or payment would be in undue hardship. Critics acknowledge, however, that borrowers must prove themselves, a number of whom do not have legal representation.
Political and economic implications
Education Secretary Linda McMahon cast the policy as a necessary counterbalance to the Biden administration’s “misleading” debt relief plans, which she contends exceeded executive power. “American taxpayers will no longer be forced to subsidize irresponsible borrowing,” McMahon declared, citing the $1.6 trillion portfolio of federal student loans.
But the move has elicited harsh criticism from Democratic lawmakers, accusing the Trump administration of prioritizing fiscal discipline over borrower welfare. While congressional leaders are negotiating how to make repaying loans simpler and cheaper and reduce the expense of attending college, the reactivation of collections highlights deepening ideological fault lines over financing college.
A precarious path forward
With the deadline for May 5, the Department has a broad outreach program using email, social media, and longer call center hours to get borrowers into paying back. The Loan Simulator and AI chatbot “Aiden” are efforts to mystify payment plans, but it remains to be seen whether they succeed on a mass scale.
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