Treasury could hire private debt collectors for defaulted federal student loans as soon as November, and some officials want wage garnishment to resume in the 2027 tax season. The Washington Sun reported the plans on October 19, citing five anonymous sources. Treasury and the White House budget office declined to comment, and no restart date has been announced.
What the report says Treasury is planning
Three of the five sources told the Sun that Treasury is moving forward with plans to hire private debt collectors, possibly as soon as November. They said the plans are unlikely to be announced before the midterm elections. The Education Department said it does not respond to “fishing expeditions.”
Two collection tools are in play. Treasury offset seizes expected federal payments such as tax refunds, Social Security payments and the earned income tax credit and child tax credit. Wage garnishment requires an employer to pay what a worker owes directly to the government. Some officials want both for the tax year ending with the April 15, 2027 deadline, the Sun reported, though sources cautioned that could slip again.
Anyone in default has a reason to know the limits. The National Consumer Law Center, quoted by Forbes, says the government can tell an employer to withhold up to 15% of wages without a court order. Up to 15% of Social Security benefits can be withheld each month, but only while the remaining benefit stays above $750. People on SSI or veterans benefits should not be subject to offset.
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Notice comes first, according to the same account. A borrower gets an initial 65-day notice before Treasury offset and a notice at least 30 days before garnishment or a Social Security offset begins. Notices go to the last known address, so a stale address at the loan servicer can mean a missed deadline.
Collections are paused for now
The Education Department has said that involuntary collections, including administrative wage garnishment and the Treasury Offset Program, are temporarily delayed. The notice gives no end date. Under Secretary Nicholas Kent said collections will function more efficiently and fairly once the administration implements significant improvements.
The department tied the delay to repayment changes under the Working Families Tax Cuts Act. A new income-driven plan that waives unpaid interest for borrowers who make on-time payments is available from July 1, 2026. Borrowers can also rehabilitate a defaulted loan a second time, where before only one rehabilitation was allowed.
Treasury and the Education Department opened a Defaulted Loans Support Center on September 30, an online portal at StudentAid.gov. Treasury says more than 5 million borrowers have been in default for over six years and another 5 million defaulted in under a year. Rehabilitation approvals rose 69% in under six months, and consolidations out of default rose 95%.
Treasury Secretary Scott Bessent called the portal an early achievement aimed at “restoring fiscal responsibility to our nation’s $1.7 trillion federal student loan portfolio.” Education Secretary Linda McMahon said the Department of Education was never intended to serve as the fifth largest bank in America. The Sun puts the number of borrowers in default at nearly 10 million.
Who inside the administration disagrees
The Sun reported that the White House Office of Management and Budget began helping the Education Department prepare to seize federal benefits and wages from defaulted borrowers last year. Treasury officials blocked that effort over concerns about the economic cost of punitive measures against workers. Matt Chingos, a Treasury official, is leading efforts to restart collections while reducing the harm.
Marc Goldwein, senior vice president at the Committee for a Responsible Federal Budget, told the Sun that postponing collections has cost taxpayers about $5 billion so far. Michael Pierce, executive director of Protect Borrowers, said Treasury may lack the data needed to legally certify debts for collection. Preston Cooper of the American Enterprise Institute urged a wider effort to prevent defaults.
One source told the Sun that 2027 “probably makes a little more sense to give Treasury time to get contracts signed, up and running.” The report adds that the administration’s stated preference is still to move borrowers into voluntary payment plans.
Ways out of default before a collector calls
Education Department guidance tells borrowers in default to contact their defaulted federal loan servicer, consider consolidating, or begin rehabilitation to bring the loan out of default. It notes that the department reports defaults to credit agencies. Treasury’s portal lets borrowers compare paths, apply for rehabilitation or consolidation, and make a payment on a defaulted loan.
The consumer law center lists other routes: applying for a discharge, contesting whether the loan is valid, paying or settling, and rehabilitating after nine reasonable and affordable payments. A financial hardship objection is usually denied unless circumstances are dire, it says, and consolidating with wages already garnished may not be possible. Its advice is to keep the address current at the servicer and on StudentAid.gov.
The report is a plan described by anonymous sources, not an announcement. For the nearly 10 million borrowers in default, it means contracting could begin while collections stay formally paused. The open question is whether a borrower has an address on file, a servicer contact and a plan before the first notice arrives.
Will the first collector letter be answered in time?
A garnishment notice carries a deadline, and the Forbes account of the rules puts it at no fewer than 30 days before wages are taken. A borrower in default who has not sorted out which debts are federal, which are private, and what a collector must prove can lose the window while looking for paperwork.
The Bank Account & Debt Protection Kit includes the debt-validation steps for a collector that calls, the 2-month bank protection rule for Social Security deposits, and a debt inventory, call log and deadline tracker. It does not file objections or stop federal collection. It gives a borrower one place to record every notice, call and date.
Get the debt-validation steps for a student-loan collector in the protection kit →
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This article was produced with AI assistance and edited for accuracy against the sources linked above.
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.
