Trump administration moves to garnish wages of defaulted student loan borrowers: What to know Here's what we know
A CNBC story about the Trump administration's move to garnish wages of defaulted student loan borrowers sparked many readers to write in
Shortly after the Trump administration resumed collection efforts on defaulted federal student loans, the Education Department offered more detail to borrowers about the timeline for garnishments and other involuntary collections.
Dozens of borrowers reached out to CNBC with questions and concerns about the change in policy.
We spoke with experts to get answers. Here's what we know so far.
Why are borrowers now at risk of wage garnishment?
Since the Covid pandemic began in March 2020, collection activity on federal student loans had mostly been paused. The Biden administration focused on extending relief measures to struggling borrowers in the wake of the public health crisis and helping them to get current.
The Trump administration's move to resume collection efforts and garnish wages of those behind on their student loans is a sharp turn away from that strategy. Officials have said that taxpayers shouldn't be on the hook when people don't repay their education debt.
"Borrowers should pay back the debts they take on," said U.S. Secretary of Education Linda McMahon in a video posted on X on April 22.
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Consumer advocates argue that federal student loan borrowers have faced a chaotic lending system, with constantly changing rules, unfair costs and bad information.
"People who default on loans typically truly cannot afford to pay them," said James Kvaal, who served as U.S. undersecretary of education for former President Joe Biden, in a previous interview with CNBC.
How much of my wages can the government take?
The U.S. Department of Education can garnish up to 15% of your disposable, or after-tax, pay, said higher education expert Mark Kantrowitz.
By law, you must be left with at least 30 times the federal minimum hourly wage ($7.25) a week, which is $217.50, Kantrowitz said.
When could the wage garnishments start?
The Treasury Department will send notices to 5.3 million defaulted borrowers about the collection activity of their wages "later this summer," the Education Department wrote in a recent press release.
As soon as June, the Trump administration says it will begin seizing portions of defaulted student loan borrowers' federal benefits when applicable, including their Social Security retirement checks. (Social Security recipients can typically see up to 15% of their monthly benefit reduced to pay back their defaulted student debt, but beneficiaries need to be left with at least $750 a month.)
What if I'm self-employed, or a gig worker?
It is more difficult for the federal government to garnish the wages of someone who receives 1099 income, Kantrowitz said.
"If there is no employer, wage garnishment can't happen," he said.
Can I challenge the wage garnishment?
Yes.
Borrowers in default will receive a 30-day notice before their wages are garnished, a spokesperson for the Education Department told CNBC.
During that period, you should have the option to have a hearing before an administrative law judge, Kantrowitz said. The Education Department notice is supposed to include information on how you request that, he said.
Your wages may be protected if you've recently been unemployed, or if you've recently filed for bankruptcy, Kantrowitz said.
Borrowers can also challenge the wage garnishment if it will result in financial hardship, he added.
What should I tell my employer?
Most employers will already be familiar with the wage garnishment process, Kantrowitz said, "since this occurs for a variety of reasons, such as child support, alimony and unpaid taxes — not just student loans."
Your boss is not allowed to terminate you because of the wage garnishment, Kantrowitz said.
How do I get out of default?
You can contact the government's Default Resolution Group and pursue a number of different avenues to get current on your loans, including enrolling in an income-driven repayment plan or signing up for loan rehabilitation.
Some borrowers may also be eligible for deferments or a forbearance, which are different ways to pause your payments, said Carolina Rodriguez, director of the Education Debt Consumer Assistance Program in New York, in an earlier interview with CNBC.
"We're advising clients to request a retroactive forbearance to cover missed payments, and a temporary forbearance until they can get enrolled in an income-driven repayment plan," she said.
This story originally appeared on: CNBC - Author:Annie Nova
