Crackdown on Student Loan Defaulters to Begin With Benefit Seizure, Then Wage Garnishment

Federal collections have resumed after the pandemic-era freeze. Beginning in June, the government will intercept defaulters’ tax refunds and other payments.

Students walk past a graduation cap and stole at George Washington University in Washington on May 2, 2022. Stefani Reynolds/AFP via Getty Images

The U.S. government will begin seizing federal benefits from 195,000 student loan defaulters in June, with wage garnishment notices set to reach 5.3 million borrowers later this summer, the Education Department announced on May 5, marking the formal restart of involuntary collections after a years-long pause.

The renewed enforcement effort begins with the Treasury Offset Program, which allows the federal government to intercept tax refunds, Social Security checks, and other federal payments to recover unpaid student debt. Borrowers affected by the program began receiving notices on May 5, the department said.

“Starting today, approximately 195,000 defaulted student loan borrowers will begin receiving an official 30-day notice from the U.S. Department of Treasury notifying them that their federal benefits will be subjected to the Treasury Offset Program,” the Education Department said in the May 5 announcement.

Following the notice period, administrative wage garnishment will begin later this summer for all 5.3 million borrowers who remain in default. Guaranty agencies have also been authorized to resume involuntary collections on defaulted loans under the Federal Family Education Loan Program, the department stated.

The move officially ends a pandemic-era freeze first imposed in March 2020 under President Donald Trump and extended multiple times under the Biden administration. Although payments officially resumed in fall 2023, most collection efforts remained paused—until now.

In an April 21 statement previewing the shift, the department said the decision was necessary to “restore common sense and fairness” and protect taxpayers, citing data that only 38 percent of the 42.7 million federal student loan borrowers were current on their loans, while nearly 10 million were delinquent or in default. The remainder were in forbearance, deferment, or grace periods.

“Student and parent borrowers–not taxpayers–must repay their student loans,” the Education Department said at the time. “There will not be any mass loan forgiveness.”

As of early 2025, roughly 5 million borrowers were already in default and another 4 million were in late-stage delinquency, defined as 91 to 180 days behind on payments. The New York Federal Reserve estimated that delinquent student debt reached $250 billion by the end of 2024.

To help borrowers avoid wage garnishment or benefit offset, Federal Student Aid has launched direct outreach and expanded support services, encouraging borrowers to enroll in income-driven repayment plans, make voluntary payments, or begin loan rehabilitation.

Alongside the repayment restart, the Education Department also issued a Dear Colleague letter to colleges and universities on May 5, warning that schools must act quickly to avoid federal penalties tied to rising default rates.

The letter reminded institutions that the cohort default rate—the share of former students who default soon after leaving school—must stay below 40 percent in a single year or 30 percent for three years in a row, or the school risks losing access to Pell Grants and federal student loans.

To mitigate that risk, the department urged schools to immediately contact former students with reminders of their loan obligations and information on repayment plans.

“As we begin to help defaulted borrowers back into repayment, we must also fix a broken higher education finance system that has put upward pressure on tuition rates without ensuring that colleges and universities are delivering a high-value degree to students,” Secretary of Education Linda McMahon said in a statement. “For too long, insufficient transparency and accountability structures have allowed U.S. universities to saddle students with enormous debt loads without paying enough attention to whether their own graduates are truly prepared to succeed in the labor market.”

The department also said it plans to publish institution-level nonpayment rates later in May to increase transparency and accountability across the higher education sector.

The enforcement restart follows the collapse of former President Joe Biden’s sweeping student loan forgiveness plan, which aimed to cancel hundreds of billions in debt through executive action. The Supreme Court struck down the plan in 2023, ruling that the administration lacked the authority to cancel loans without congressional approval.

In April, McMahon made clear that the department would no longer pursue blanket debt forgiveness.

“American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies,” McMahon said in April. “The executive branch does not have the constitutional authority to wipe debt away, nor do the loan balances simply disappear.”

While supporters of Biden’s proposal argued that widespread forgiveness would reduce inequality and stimulate economic growth, critics said it was fiscally reckless and unfair to borrowers who had already repaid their loans—or never borrowed at all.