The federal government has resumed collections on defaulted student loans, and nearly 200,000 borrowers could soon see wage garnishment, tax refund seizures, and even Social Security offsets. After a five-year pause, aggressive collection actions are officially back, putting many Americans’ financial stability at risk.
If you have federal student loans in default, time is critical to avoid major disruptions to your paycheck and benefits.
What does the restart of collections mean?
The Department of Education announced that beginning June 2025, it will resume full-scale collections through the Treasury Offset Program. This program allows the government to:
- Garnish wages directly without a court order.
- Seize federal tax refunds.
- Offset Social Security checks and other federal payments.
Loans are considered in default if they are more than 270 days past due. Borrowers who do not act soon could face automatic deductions from their income and government benefits.
How to stop student loan wage garnishment before it starts
Fortunately, there are several options available to prevent garnishment and protect your financial future. Here’s what you can do:
1. Apply for a Direct Loan Consolidation
Loan consolidation is one of the fastest ways to get out of default. By combining your existing federal loans into a new Direct Consolidation Loan, you can:
- Stop collection activities immediately once consolidation is completed.
- Enter an income-driven repayment plan to keep your monthly payments affordable.
- Avoid wage garnishment, tax refund seizures, and other collection actions.
Important: Consolidation won’t erase the default mark from your credit report, and you may be responsible for additional interest or fees.
2. Enter a Loan Rehabilitation Program
If improving your credit score is your priority, loan rehabilitation could be the better choice. Through rehabilitation, you:
- Make nine monthly payments based on your income.
- Have the default status removed from your credit report after successful completion.
- Regain eligibility for additional federal student aid.
Note: If wage garnishment has already started, rehabilitation payments are in addition to the amounts being withheld from your paycheck.
3. Pay the loan balance in full
Though it’s less common, paying your loan in full is another option to avoid collections. If you can pay off the full balance within 65 days of notification, you can:
- Completely eliminate any risk of wage garnishment or credit damage.
- Resolve your default without entering into new repayment agreements.
This option is typically more feasible for borrowers with access to financial assistance, family support, or settlement resources.
- Check your loan status by logging into your account at StudentAid.gov.
- Contact your loan servicer to discuss your options.
- Choose a strategy — consolidation, rehabilitation, or payoff — before garnishment actions begin in June.
Acting now is crucial. Waiting too long could result in paycheck deductions, seized refunds, and major credit setbacks.
Key takeaways
- Wage garnishment on defaulted student loans resumes in June 2025.
- Borrowers can avoid garnishment through consolidation, rehabilitation, or paying in full.
- Immediate action is necessary to protect your income, tax refunds, and benefits.
For more updates and advice on managing student loans and avoiding wage garnishment, follow our latest coverage here at FingerLakes1.com.
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