Federal student loan garnishments return as borrowers face financial strain

[UNITED STATES] John Doe, a special education teacher in Virginia, often finds himself waiting until payday to fill up his car’s gas tank, hoping he doesn't run out before then.

"Money is tight when you're a teacher," John Doe, 46, explained.

Now, he fears that the U.S. Department of Education could soon garnish as much as 15% of his wages due to overdue student loan payments. John Doe, who has struggled for years to keep up with his student loan bills, says he's been balancing the financial challenges of raising two children and covering medical expenses after a cancer diagnosis.

John Doe’s financial struggles reflect a larger issue. Educators like him, who often take on student debt to fund advanced degrees necessary for certification, are particularly vulnerable to defaulting on student loans. According to a 2023 report from the National Education Association, nearly 20% of teachers have student loan balances exceeding $60,000, compounding the difficulties of modest pay.

“If my paycheck is garnished, it would just add more strain,” John Doe said. “If my car needs repairs, or something unexpected happens, I might not be able to manage those costs.”

After a five-year pause on federal student loan collections, the Trump administration announced on April 21 that it would once again begin seizing federal tax refunds, paychecks, and Social Security benefits from defaulted borrowers.

Currently, more than 5 million student loan borrowers are in default, and that number could rise to about 10 million in the coming months, according to the Department of Education.

This sudden return to collections comes at a time when many borrowers are already struggling financially, faced with rising inflation and housing costs. Advocacy groups warn that the timing could worsen financial instability, especially in communities of color, where student debt burdens are disproportionately high.

The Biden administration had focused on providing relief to borrowers struggling to recover from the economic effects of the COVID-19 pandemic, while the Trump administration’s decision to resume aggressive collection efforts marks a stark departure from that approach.

“Borrowers should pay back the debts they take on,” U.S. Secretary of Education Linda McMahon said in an April 22 post on X (formerly Twitter).

With over 42 million Americans carrying student loan debt and federal student loan debt exceeding $1.6 trillion, the Department of Education has the authority to garnish up to 15% of a defaulted borrower’s disposable income, as well as their federal tax refunds and Social Security benefits.

“Given the high cost of living, withholding even a portion of someone’s income can cause serious financial strain and force them to prioritize essential expenses,” said Nancy Nierman, assistant director of the Education Debt Consumer Assistance Program in New York.

James Kvaal, former U.S. undersecretary of education under President Biden, stated in an interview that most people who default on their loans “truly cannot afford to pay them” and that the consequences of such defaults can be “punitive and sometimes tragic.”

For older borrowers like John Smith, the return of garnishments threatens to undo years of careful financial planning. Many retirees, living on fixed incomes, had relied on the pause in collections to stabilize their finances. Losing even a small portion of their Social Security checks could push some toward poverty. Advocacy groups, including the Student Borrower Protection Center, have called for exemptions for retirees, though no policy changes have been announced.

John Smith, 68, is devastated by the prospect of having her Social Security benefits garnished.

“I need to go home,” said Smith, who moved from Trinidad to the U.S. in the 1970s. “But if my check is garnished, I won’t be able to afford a trip back.”

Smith, who retired during the pandemic to care for her sick mother, took out student loans to support her daughter’s education but never anticipated facing financial ruin from them. When she received notice that her retirement benefits could be reduced, she was shocked.

“I was sick to my stomach,” Smith said. “I’ve worked hard all my life, and now I’m being penalized in my retirement years.”

With her monthly Social Security check of about $2,600, the potential garnishment would force her to make drastic cuts in her daily living expenses, delay necessary home repairs, and cancel any plans to return to her homeland.

“I haven’t had a vacation in years,” Smith said. “I’ve paid into the system, and I should be able to retire in peace.”

According to the Consumer Financial Protection Bureau, over 450,000 borrowers aged 62 and older are in default on their federal student loans and are at risk of having their Social Security benefits garnished.

The return of student loan collections comes at a chaotic time. During the five-year break in collections, significant disruptions occurred within the loan servicing system.

Recent audits have revealed that nearly 30% of borrowers were mistakenly placed on more expensive repayment plans due to administrative errors. Furthermore, millions of borrowers enrolled in the Biden administration's new repayment program, the Saving on a Valuable Education (SAVE) plan, were caught in limbo after legal challenges delayed its implementation. As a result, many borrowers will now face higher monthly payments once they are moved to a different repayment plan.

The Trump administration has also reduced the Education Department’s staff by approximately half, including many of the personnel who previously helped borrowers navigate their loans. This has left some borrowers waiting hours to reach customer service representatives.

“The Department extended servicing hours and released new tools to help borrowers get back on track,” an Education Department spokesperson said in a statement.

However, borrowers like Jane Doe, a management analyst at the Department of Veterans Affairs, have found it difficult to navigate the process of repaying their loans. Jane Doe, 44, initially enrolled in the SAVE plan, which allowed her to afford her monthly $150 payment. With that plan now blocked, she fears her new payment will be unaffordable.

“The biggest issue I have is the lack of information,” Jane Doe said.

Jane Doe has struggled to get clear answers from her loan servicer, facing long hold times and conflicting information. She remains uncertain which company is managing her loan, as her account has been transferred between servicers multiple times.

“The narrative is that people are dodging their payments,” Jane Doe said. “But the truth is, many people are just trying to navigate a confusing system and are being caught off guard.”

Jane Doe, who lives paycheck to paycheck, is worried that if her wages are garnished, it will create severe financial hardship for her family. "I’m lucky if I can even put aside $100 for myself," she said.