For those in default of student loans, wage garnishment awaits

People who are in default on their federal student loans could start seeing their wages garnished in the new year for the first time since the pandemic began.

Next week, the Department of Education will start sending out the first letters to borrowers who have missed at least nine months of payments, letting them know the government will soon start taking 15% of their paycheck.

Before the pandemic, it was common for people who went into default on their federal student loans to have their wages garnished.

“It was one of the most effective collection tactics that the Department of Education has at its disposal,” said Betsy Mayotte, founder and president of the nonprofit The Institute of Student Loan Advisors.

Unlike other creditors, she said the federal government doesn’t have to go to court to start garnishing people’s wages once they’re in default; it can just do it.

Around 5 million people are currently in default on their student loans, according to federal data, and millions more are behind on their payments.

“I think there's nearly universal recognition that that 5 million could easily become 8 to 10 million in the next few months,” said Adam Minsky, a lawyer who works with borrowers.

Lots of people are probably unaware that the years-long COVID payment pause is over and they’re behind, he said.

“A lot of cases, these are old loans. Borrowers may have moved, changed their address, they may not be receiving notifications,” he said. “And so I have a feeling that a lot of people are probably going to be surprised when they get hit with the garnishment.”

It will also be happening at a difficult time for many, Betsy Mayotte pointed out, as the most affordable income-based repayment plan for student loans is going away and as enhanced subsidies for ACA health insurance expire.

“I'm afraid that those things together are going to create real, real hardship,” she said, “especially for low- and middle-income families.”

For people who are in default, Mayotte added that there are options to get loans back in good standing — and they’re better than a smaller paycheck.