After a 5-year hiatus, the U.S. Department of Education reports that it will begin resuming collections of defaulted student loans on May 5, 2025. There are currently about 43 million student loan borrowers in the U.S. who owe about $1.6 trillion. The Department of Ed reports that more than 5 million people have not made a payment in the past year, and that number is expected to grow as an additional 4 million borrowers are approaching default status.
According to a 2017 report from the Consumer Financial Protection Bureau, nearly 40% of federal borrowers over age 65 are in default. This same population also tends to be on fixed incomes, making it more challenging in deciding which bills to pay.
The Department announced that it will begin notifying borrowers who are in default via email over the next 2 weeks (before May 5th), urging them to make a payment or to enroll in a repayment plan, and referring them to a government website which explains how to do so. On May 5, the department will begin referring borrowers who remain in default to a collections program run by the Treasury Department.
In its recent notice, the Education Department warned that later this summer, it will begin the process of garnishing wages to collect the debt. Normally, creditors need a court order to garnish wages, but there is an exception for the Department of Education, which can go straight to the employer.
Employers should be on the lookout for orders requiring that they withhold wages and promptly submit them on behalf of the employees. Be careful about deducting the full amount of the debt from the employee’s paycheck at one time. Most states, including D.C., Maryland and Virginia, permit no more than 25% of an employee’s disposable wages per week to be garnished.
Garnishment notices/orders can be tricky because if the employer fails to withhold the employee’s wages and remit them timely, the employer can be on the hook for these debts on their employee’s behalf. If you receive a garnishment notice, be sure to check with your employment lawyer to understand how to lawfully comply.
