Millions of Student Loan Borrowers Face Wage Garnishment as Federal Collections Resume in May

Washington, D.C. – Starting May 5, 2025, the U.S. Department of Education will resume collections on defaulted federal student loans, ending a five-year pause initiated during the COVID-19 pandemic. This move, announced on April 21, will affect approximately 5.3 million borrowers who are currently in default, with another 4 million at risk of falling into delinquency. For college students, recent graduates, and long-time borrowers, the stakes are high as the federal government prepares to enforce wage garnishment, tax refund offsets, and other collection measures.

The decision, led by Education Secretary Linda McMahon, comes as part of the Trump administration's push to restore "accountability" to the federal student loan system. "American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies," McMahon stated, criticizing the Biden administration's handling of loan forgiveness initiatives. The Department of Education emphasized that resuming collections is critical to protect taxpayers and stabilize the nation's $1.6 trillion student loan portfolio.

For the 42.7 million Americans holding federal student loans, the news is a wake-up call. Less than 40% of borrowers are current on their payments, and nearly a quarter of the loan portfolio could be in default by summer if delinquency trends continue. Default, defined as missing payments for 270 days or more, can lead to severe consequences, including damaged credit scores, loss of eligibility for additional federal aid, and, in some states, revoked driver's licenses.

Beginning next week, the Department's Office of Federal Student Aid (FSA) will email borrowers in default, urging them to make payments, enroll in income-driven repayment (IDR) plans, or explore loan rehabilitation options. These programs could help borrowers avoid involuntary collections through the Treasury Offset Program, which withholds federal payments like tax refunds, Social Security benefits, and federal salaries. Wage garnishment notices are expected to follow later this summer after a mandatory 30-day warning period.

The timing of the announcement has sparked concern among advocates, who point to recent layoffs at the FSA as a barrier to borrower support. Kristin McGuire of Young Invincibles added that staffing shortages have made it harder for borrowers to get answers, leaving many confused about their options.

Compounding the issue, a February 2025 court ruling has blocked parts of the Biden-era SAVE repayment plan, creating uncertainty around IDR programs. With President Trump's plan to potentially shutter the Department of Education and transfer loan management to the Small Business Administration, borrowers face an uncertain future.

Higher education expert Mark Kantrowitz stressed the need for borrower education, particularly for those who graduated during the pandemic and may lack experience with loan repayment. "Borrowers who graduated during the pandemic may have no experience with loan repayment, so it is important to educate them about the process, including their rights and responsibilities," Kantrowitz said to CNBC. Options like loan rehabilitation, which requires nine consecutive on-time payments, or IDR plans that adjust payments based on income, could provide relief for those struggling to repay.

As the May 5 deadline approaches, borrowers are encouraged to visit the FSA's website (studentaid.gov) to explore repayment options or contact the Default Resolution Group. With millions facing the prospect of garnished wages and seized benefits, acting now could mean the difference between financial stability and long-term debt traps.