Picture a borrower in her mid-30s who has not made a student loan payment since 2020. She earns $3,200 a month after taxes. If the federal government garnishes 15% of her disposable pay, roughly $480 disappears from every paycheck before she can spend a dime on rent, groceries, or child care. No court order is required. And for roughly 5 million borrowers who never resumed payments after the pandemic pause ended, that scenario is no longer hypothetical.
A Congressional Research Service analysis found approximately 5.3 million borrowers with Education Department-held loans in default as of June 30, 2025, using the standard threshold of 270 days without a payment. By December 2025, the department’s own Federal Student Aid portfolio data showed that figure had climbed to roughly 7.7 million. That spike reflects the wave of borrowers who were shielded by COVID-era forbearance for more than three years and then, when payments restarted, simply never picked back up.
The question facing those borrowers is not whether the government has the power to collect. It does. The question is when it will start, and the answer keeps changing.
How the government collects without going to court
Federal law gives the Education Department collection powers that go well beyond what a private creditor could use. Three tools stand out, and none of them require a judge’s signature.
Tax refund seizure. The Treasury Offset Program, run by the Bureau of the Fiscal Service, can intercept federal tax refunds and certain other federal payments once a defaulted debt is certified for collection. If you were counting on a refund to cover rent or car repairs, the money may never reach your bank account.
Wage garnishment. Under 20 U.S.C. 1095a, the department can order your employer to withhold up to 15% of your disposable pay. The implementing rules under 34 CFR Part 34 require written notice at least 30 days before garnishment begins, along with the right to inspect records and request a hearing. But this is an administrative process, not a lawsuit. State garnishment protections that would normally limit what a creditor can take often do not apply.
Social Security reduction. The Treasury Offset Program can also reduce Social Security retirement and disability benefits to recover defaulted student debt. Supplemental Security Income (SSI), however, is fully exempt under federal benefit offset regulations.
One detail that catches many borrowers off guard: federal student loans carry no statute of limitations. Unlike credit card debt or medical bills, a defaulted federal student loan does not age out. The government’s authority to garnish and offset can follow a borrower for decades.
The Education Department keeps changing its mind
Borrowers trying to figure out what is actually happening have been whipsawed by contradictory announcements from the department itself.
In early 2025, the department announced that Federal Student Aid would restart collections on defaulted loans effective May 5, 2025, including Treasury offsets and the initial steps toward wage garnishment. The announcement framed the move as a return to normal after the pandemic while also pointing borrowers toward pathways out of default.
Then came the reversal. A follow-up release said the department would postpone involuntary collections, placing both wage garnishment and Treasury offsets on hold while officials worked through ongoing problems with the return to repayment. No new start date was given.
The Social Security question adds another layer of confusion. The Associated Press reported that a department spokesperson said defaulted borrowers would no longer face reductions to their Social Security benefits. If that holds, it would be a significant shield for older and disabled borrowers who face some of the harshest consequences of default. But the department has not published formal regulatory changes or written guidance confirming the carve-out. Borrower advocates say they cannot tell whether the shift is permanent, temporary, or limited to certain loan programs.
As of June 2026, no single policy document reconciles these announcements. A borrower who is simultaneously in default, expecting a tax refund, and receiving Social Security retirement benefits has no reliable way to predict which collection tools the government will or will not deploy.
What about borrowers with pre-pandemic garnishment orders?
Some borrowers were already subject to wage garnishment or Treasury offsets before the pandemic pause began in March 2020. When the CARES Act halted involuntary collections, those existing orders were suspended along with everything else. The department has not issued specific guidance on whether those pre-pandemic orders will simply resume automatically once the current hold lifts or whether affected borrowers will receive new 30-day notice letters before garnishment restarts. Borrowers in this situation should contact their loan servicer to confirm the status of any prior garnishment order and, if they have not already, explore rehabilitation or consolidation to exit default before collections resume.
What defaulted borrowers should do right now
The policy confusion does not change the underlying legal exposure. Borrowers in default should treat the government’s full collection authority as either active or capable of resuming with little advance warning. These steps can reduce that risk:
- Verify your loan status. Log in to StudentAid.gov and confirm whether your loans are listed as defaulted, in repayment, or in another status. Servicer transfers since the return to repayment have been plagued by errors, and some borrowers have been marked as defaulted incorrectly.
- Look into loan rehabilitation. Making nine on-time, agreed-upon payments within 10 consecutive months removes a loan from default and erases the default notation from your credit report. This option is available only once per loan, so it is worth using strategically.
- Consider consolidation. Borrowers can also exit default by consolidating into a new federal Direct Loan. This is faster than rehabilitation but does not remove the default from your credit history.
- Check whether you qualify for discharge. Total and permanent disability discharge, closed-school discharge, and borrower defense to repayment claims can eliminate the debt entirely for borrowers who meet the criteria.
- Do not ignore your mail. Before the government garnishes wages, it must send written notice at least 30 days in advance. Treasury offset notices arrive separately. These letters are not junk mail. They are the starting gun for collections, and they also contain instructions for requesting a hearing or disputing the debt.
Once a loan is back in good standing, income-driven repayment plans can bring monthly payments down to a manageable level. Plans such as Pay As You Earn (PAYE) and Income-Based Repayment (IBR) remain available and can set payments as low as $0 for borrowers with limited income. Borrowers who previously attempted to enroll in the SAVE plan, which has been blocked by ongoing litigation, should check with their servicer about alternative options.
Why waiting for clarity is the riskiest move of all
For the millions of borrowers sitting in default, the most dangerous choice may be doing nothing. The practical harm extends beyond garnishment and offset. A borrower deciding whether to file taxes, claim a refund, or adjust Social Security withholding cannot make an informed decision when the department’s own statements contradict each other. Legal aid organizations have urged the department to issue consolidated, binding guidance spelling out exactly which collection tools are active, which are paused, and what timeline borrowers should expect.
That guidance has not arrived. And the law has not changed. The government still holds every collection tool Congress gave it, the debt has no expiration date, and the only reliable protection is getting out of default before the next policy announcement flips the switch again.
Warren Cohen is a finance writer based in Phoenix, Arizona, covering personal finance topics including credit, banking, and beginner investing. He earned his degree in business administration from Arizona State University and began his career working in consumer finance, where he gained direct experience with lending and credit systems. He now writes for personal finance websites and fintech platforms, focusing on clear, practical content that helps readers make informed financial decisions.
