Student Loan Fallout
The Trump administration has reinstated wage garnishment for federal student loan borrowers in default following the expiration of pandemic-era repayment, reporting, and collections moratoria. Delinquency rates have skyrocketed recently and upwards of 3 million borrowers are believed to be delinquent (more than 270 days past due on their payments).
Garnishment notices were issued to approximately 1,000 borrowers this week, with plans to add to the roles monthly. Up to 15% of after-tax wages can be seized (subject to protections ensuring the borrower retains a minimum income), along with federal tax refunds and some federal benefits like Social Security. Borrowers receive 30 days’ notice and have the right to request hearings to dispute the debt, argue financial hardship, or avoid garnishment by arranging repayment through rehabilitation or loan consolidation.
Although individuals who take out loans are obligated to repay them, there is nonetheless a tension between enforcing repayment and increasing financial strain on borrowers.
Stepped-up payment enforcement, just like the resumption of payment requirements and reporting last year, will have a nuanced impact on consumer spending as it rolls out. The hit to overall spending will be modest but certain groups of borrowers, particularly those with lower incomes and/or subprime credit, are likely to experience increased financial strain as they adjust their budgets.
January 8th, 2026
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