For the first time in nearly six years, the federal government was poised to resume administrative wage garnishment for federal student loan borrowers in default—yet, a last-minute pause indefinitely delayed such efforts.
Garnishment—which could impact more than 5 million Americans in default—was set to resume earlier this month, after a pandemic-era halt. But on Friday, the U.S. Department of Education announced wage garnishment practices are back on hold, as the administration revamps student loan repayment plans, efforts that are expected to be finalized this summer. At that point, garnishment will “function more efficiently and fairly,” a spokesperson said. However, the department did not provide a specific timeline for when wage garnishment may return.
The federal government halted administrative wage garnishment—a practice where the government can deduct up to 15% of a defaulted borrower’s paycheck—in March 2020 at the start of the COVID-19 pandemic. The move came amid a broader effort to provide emergency financial support during the crisis, including the pause of federal student loan payments.
Those efforts have slowly resumed, with interest accrual and some payments resuming in 2023, and debt collection efforts starting back up last year. Administrative wage garnishment was set to roll back out in a phased approach: The first 1,000 borrowers were notified at the start of January that wage garnishment would begin in 30 days without a resolution, and that number was expected to continuously climb.
“It’s a slow start but it is expected to accelerate with time,” says Jeni Burckart, vice president of workforce services at Tuition.io, an employee financial wellness benefit platform, told HR Executive before the Education Department announcement last week.
The department first notifies the borrower, Burckart says, and will then contact the employer. When garnishment does return, it’s critical that HR prioritizes compliance.
“The orders are very specific on how to remit payments, and you have to follow the instructions exactly and provide the data that’s needed,” she says.
The withholdings must continue until the federal government notifies the employer that the loan is either paid in full or the default status is resolved.
Employers will be hit differently, but Burckart anticipates that the number of younger borrowers sliding into default and eventually being affected by wage garnishment will pick up. With loan payments paused for several years during and after the pandemic, she says, many new grads never had the urgency to repay on a timeline—and could be struggling now to stay on track.
Default status is triggered when a borrower reaches 270 days of missed payments.
“There’s a huge chunk of borrowers in delinquency and late-stage delinquency, and they’re approaching default rapidly,” she says.
The broader impact
Depending on the loan and the employee’s wages, garnishment could significantly impact a worker’s financial picture: Federal law only requires employees to be left with 30 times the federal minimum wage after garnishment, which amounts to just over $200 a week.
“Barely anybody could live off of that, so it will be incredibly stressful to people,” Burckart says.
Particularly in light of the broader financial landscape—with high inflation and ongoing global economic uncertainty—employees are going to bring that financial stress into the workplace, she says. Apart from the documented effects of stress on areas like productivity and engagement, spiking financial pressure could drive up turnover. For instance, pre-pandemic, wage garnishment was a “significant contributor,” Burckart says, to retention troubles, particularly in sectors like retail, hospitality and service industries, where workers looked to job hopping to “try to outrun that to wage garnishment order.”
“Some people found it was probably easier to go find a different entry-level job where they would get a whole paycheck than stay with that employer and have their wages garnished,” she says.
Strategies to help employees facing wage garnishment
It’s in an employer’s best interest to help employees avoid garnishment, which Burckart says can start with proactive communication.
Ensure employees understand their options, for one, such as the Department of Education’s Default Resolution Group and possibilities for flexible loan repayment options.
HR should caution the workforce to only seek assistance through studentaid.gov, as scammers are out in force to take advantage of borrowers desperate to avoid wage garnishment.
“The time sensitivity of this lends itself to a scam,” she says. “The Department of Education isn’t going to say you only have to pay $2,000 on a $20,000 loan; if it sounds too good to be true, it is.”
Apart from raising awareness, HR can also connect with third-party professionals. Tuition.io recently debuted its Quick Start Student Loan Wellness program, a seven-day program for which implementation fees are currently waived. Features include access to educational webinars, financial-decision tools and one-on-one coaching.
“There are strategies for student loan repayment—it doesn’t have to just be a war of attrition,” Burckart says.
