BIRMINGHAM, Ala. – Starting this month, the federal government will again begin withholding wages from borrowers who have defaulted on their federal student loans.
The U.S. Department of Education says the policy applies to borrowers who are at least nine months behind on payments, ending a pause that began during the COVID-19 pandemic.
The department confirmed to Alabama Daily News that it will send notices to approximately 1,000 borrowers whose paychecks could be affected beginning this week, with more notices to follow at an increasing scale each month.
More than 5 million borrowers nationwide are currently in default on their federal student loans, according to federal data. Millions more are considered at risk after student loan payments resumed last year following a more than three-year pause. Only about two-thirds of borrowers are current on their payments.
It’s unclear how or when the change could affect the roughly 92,000 Alabamians who have defaulted on $2.1 billion in student loans, according to federal data posted on the department’s website.
Under federal law, the government can withhold up to 15% of a borrower’s paycheck without a court order once a loan enters default. Employers are required to send the withheld funds directly to the federal government.
Borrowers who receive a notice of intent to garnish wages have 30 days to respond. If no action is taken, employers must begin withholding wages.
The Department of Education’s website outlines three ways borrowers can get out of default: paying the loan in full, rehabilitating the loan or consolidating it.
Consumer advocates warn that even limited wage withholding could have serious consequences for borrowers already struggling with high living costs.
Defaults can also be reported to credit bureaus, making it harder to obtain credit cards, car loans or mortgages.
The administration says restarting wage garnishment is necessary to protect taxpayers and enforce the terms of federal loans.
Critics argue the policy risks pushing financially vulnerable borrowers deeper into hardship, particularly those who never fully recovered from the economic disruptions of the pandemic.
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