Millions of Americans in default on their federal student loans could face wage garnishment and see their tax refunds seized next year as the Trump administration again prepares to restart involuntary debt collection. The Washington Sun spoke with sources close to the administration who said that officials are preparing to impose financial consequences on defaulted borrowers in 2027 after repeatedly delaying those measures. Specifically, the Treasury Department is moving toward hiring private debt collectors, potentially as soon as November.
If they remain that way, they could soon see their wages garnished and even lose out on portions of certain federal benefits. With that said, borrowers are generally required to receive advance notice before those collections begin so that they have an opportunity to contest the debt or get out of default. According to the National Consumer Law Center, the government may take up to 15 percent of a defaulted borrower's wages and has the power to intercept federal tax refunds and offset Social Security benefits.
The Washington Sun reported that nearly 10 million Americans are in default on their federal student loans. Last year, the White House Office of Management and Budget assisted the Education Department in preparing to seize wages and federal benefits, but Treasury officials resisted moving forward because of concerns about the economic consequences for financially vulnerable workers. The administration subsequently delayed its involuntary collections, but time could be running out for borrowers.
Someone falls behind on a student loan, then loses part of their paycheck....And suddenly they're struggling to cover rent, groceries or their car payment,” Ryan said. "If you have defaulted on your federal student loans, the government can tell your employer to withhold up to 15 percent of your wages to collect your student loans without taking you to court,” the National Consumer Law Center (NCLC) says on its website. That wage garnishment can generally continue until the debt is repaid or the borrower gets out of default.
However, the borrower isn't supposed to wake up one morning and discover 15 percent missing from a paycheck without warning. The government is generally required to send notice at least 30 days before initiating administrative wage garnishment, according to the NCLC. The notice should explain that garnishment is approaching and present options for avoiding or reducing it.
Wages aren't the government's only collection tool. The Treasury Offset Program also allows the government to intercept some federal benefits, including Social Security retirement and disability benefits. According to the NCLC, the government may withhold up to 15 percent of Social Security retirement or disability benefits, provided the remaining monthly benefit does not fall below $750.
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