US Pauses Wage Seizures in Student Loan Overhaul Update

• U.S. Department of Education pauses wage garnishments and tax refund seizures for defaulted federal student loans.
• The pause continues while new income-driven repayment plans and simplified repayment rules are implemented for borrowers.
• Over five million Americans default on federal loans, gaining temporary relief to adjust to upcoming repayment changes.

The U.S. Department of Education announced a temporary halt to wage garnishments and tax refunds for borrowers with defaulted federal student loans, reversing its plan to begin involuntary collections in early 2026.

This announcement comes while the department pushes through its finalization of a significant overhaul in the federal student loan repayment process, as repayments are delayed until new and simpler ways are ready to be implemented.

Under existing law, federal student loan borrowers are considered in default when they are at least 270 days behind on their payments, making them subject to administrative wage garnishment  which allows the government to withhold a portion of a borrower's paycheck to repay overdue debt and the Treasury Offset Program, which can seize federal tax refunds and other federal benefits.

These penalties had been on hold since the pandemic but were scheduled to resume early this year after being lifted.

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The Education Department announced that both wage garnishment and federal payment seizures are continuing to be suspended during a time when the Department is implementing repayment plan changes ordered by Congress that include simplifying repayment plans and implementing a new income-driven repayment plan that is scheduled to launch July 1, 2026.

 These new policy changes are designed to make repayment more feasible by capping payments based on income and increasing chances for loan rehabilitation for some borrowers

At present, over 5 million Americans have defaulted on their federal student loans. This is accompanied by millions more at risk of default. This pause is expected to give such individuals a chance to familiarize themselves with the new repayment plan and thus avoid financial consequences.

While the halt provides temporary respite, the Education Department has not yet signaled a new timeline for when wage garnishment or seizures of tax refunds can be reinstituted.

 Borrowers, meanwhile, are encouraged to work with loan servicers during the transition period to explore repayment options.