Education Department To Start Garnishing Wages Of Defaulted Student Loan Borrowers In January

As we and others have noted several times over the last year, the US government will be garnishing the wages of student loan borrowers in default – with actual garnishment now set to begin in January, CNBC reports. 

A spokesperson for the US Department of Education confirmed the plan, which will mark the first time a portion of borrowers’ paychecks have actually been at risk since the beginning of the Covid-19 pandemic, when collection activity was halted.

Starting the week of Jan. 7, the Education Department expects around 1,000 defaulted student loan borrowers to receive notices of administrative wage garnishment, the spokesperson said. After that, the number of notified borrowers will continue to increase. -CNBC

While the US government can seize borrowers’ federal tax refunds, wages, Social Securiity and disability benefits, the Education Department can legally seize up to 15% of a student loan holder’s after-tax income to apply toward their debt. 

More than 42 million Americans have student loan debt, which now exceeds $1.6 trillion. 

There are currently more than 5 million student loan borrowers in default, a number which could explode to roughly 10 million borrowers soon, the Education Department said in April.

As the WSJ noted in June, 

Until past due payments are paid in full or the default status is resolved, borrowers could see up to 15% of their wages automatically deducted from their paychecks.

Borrowers who have been newly reported as delinquent since then on their student loans have seen an average 60-point drop in their credit scores, according to TransUnion. Nine percent of borrowers who fell into delinquency were current on their payments by April, according to TransUnion.  

The Education Department has been urging borrowers to resume payments and emphasizing the consequences. Roughly 43 million borrowers owe more than $1.6 trillion in student-loan debt. 

More than nine million of them are expected to see their credit scores drop this year, according to data from the New York Fed released in March. 

Meanwhile, the job market for Gen Z is looking beyond dismal – as hiring has been down for the better part of a year amid signs that layoffs are ticking up. 

According to a July survey from Cengage Group, of more than 2 million people who earned their bachelor’s degrees in the spring of 2025, just 30% reported finding a full-time job in their field. The report also found that around 76% of employers reported hiring the same number or fewer entry-level employees in 2025 vs. 2024, citing a tightening labor market, the rise of AI, and broader economic pressures that include inflation and Trump’s tariffs. 

According to Nich Tremper, senior economics for payroll and HR service provider Gusto, the slowdown is in large part due to overhiring during the post-pandemic economy in 2021 and 2022 which saw businesses offering high salaries to compete for talent. 

Layoffs, meanwhile, are at their highest level since the pandemic, with around 1.1 million announced job cuts between January and October 2025, according to data from outplacement firm Challenger, Gray & Christmas cited by CNBC. 

“Folks are kind of just sitting still,” said Tremper. “They’re not looking for new roles, they’re not leaving their current roles. Without those new jobs available, it’s hard for an entry-level employee to get their foot in the door and start their career.” 

As of September, the unemployment rate for recent college grads reached 9.7%, the same as for 20-24-year-olds with only a high school diploma, according to the Fed.