Trump administration delays plan to withhold wages for student loan borrowers in default

The Trump administration announced Friday it will delay plans to resume wage garnishment and tax refund withholding from student loan borrowers in default, reversing an earlier decision that would have impacted millions of Americans struggling with education debt.

The Education Department cited ongoing work on new repayment plans as the reason for extending the pause on involuntary collections, which had been scheduled to restart this month following the end of pandemic-era protections.

“The Department determined that involuntary collection efforts such as Administrative Wage Garnishment and the Treasury Offset Program will function more efficiently and fairly after the Trump Administration implements significant improvements to our broken student loan system,” said Nicholas Kent, the department’s higher education chief, in a statement.

The decision provides temporary relief to the more than 5 million Americans currently in default on their federal student loans. A borrower enters default status after falling 270 days behind on payments, at which point the government gains the authority to seize portions of their wages and withhold federal payments like tax refunds.

The administration had previously announced plans to resume targeting tax refunds last spring and had scheduled the restart of wage garnishments for January, with initial notices to be sent to 1,000 borrowers beginning the week of January 7. Both penalties will now remain suspended indefinitely.

Student loan advocacy groups welcomed the reversal. “The administration’s plans would have been economically reckless and would have risked pushing nearly 9 million defaulted borrowers even further into debt,” said Aissa Canchola Bañez, policy director at the nonprofit Protect Borrowers.

The pause comes amid broader changes to the federal student loan system. The department is working to implement new repayment options scheduled to launch July 1, following congressional mandate to simplify what critics described as an overly complex system. Under the new framework, borrowers will choose between a standard repayment plan and an income-driven plan that adjusts payment amounts based on the borrower’s earnings.

The announcement represents a significant policy shift for the administration, which had been moving to reinstate collection tools that were suspended during the COVID-19 pandemic. The pandemic-era payment pause, initially implemented in March 2020, protected borrowers from consequences of non-payment for nearly three years before the Trump administration ended it.

Financial experts note that the student loan landscape has grown increasingly challenging for many Americans. Recent department data indicates that alongside the 5 million borrowers already in default, millions more have fallen behind on payments and face potential default this year without intervention.

Last month, the department eliminated the SAVE Plan, a Biden administration initiative that offered lower monthly payments and accelerated loan forgiveness timelines. That program was blocked by a federal judge after legal challenges from Missouri and other states.

The department did not specify when involuntary collections might eventually resume, stating only that the delay will give borrowers time to evaluate upcoming repayment options.

This extension provides a temporary reprieve for millions of financially vulnerable Americans, but underscores ongoing challenges in the $1.7 trillion federal student loan system. With new repayment plans on the horizon and continued political debate over loan forgiveness initiatives, the administration faces mounting pressure to address what many describe as a student debt crisis affecting approximately 43 million borrowers nationwide.