Key Points
- The U.S. Department of Education is postponing wage garnishments and tax refund offsets on defaulted federal student loans.
- The delay is meant to give borrowers time to prepare for new repayment rules, including the upcoming Repayment Assistance Plan (RAP).
- Borrowers in default will now have more time to rehabilitate their loans and get out of default.
The Department of Education officially announced today that it will delay the start of involuntary collection activity on federal student loans, including Administrative Wage Garnishment and tax refund seizures through the Treasury Offset Program. The move follows remarks by Education Secretary Linda McMahon at a press event and is framed as a transition period ahead of major changes to the federal repayment system.
Under current law, borrowers who default on federal student loans can have wages garnished without a court order and see federal benefits or tax refunds withheld. The Department said the temporary pause will allow time to implement new repayment plans and give borrowers more time to get out of student loan default.
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Why Collections Are Being Delayed
Department officials said involuntary collections would resume only after the new system is in place, arguing that enforcement will work better once borrowers have clearer and more affordable repayment paths.
There is currently no ETA on when collections will resume.
The One Big Beautiful Bill Act (OBBBA) significantly reduces the number of federal repayment plans, replacing what officials described as a confusing set of choices with two primary options: a standard repayment plan and an income-driven repayment, or IDR, plan. The Department says simplifying the structure is meant to reduce borrower errors and missed payments that can lead to default.
The newly created Repayment Assistance Plan (RAP) is central to the changes. Beginning July 1, 2026, the plan will waive unpaid interest for borrowers who make on-time monthly payments that are too small to cover accruing interest. In certain cases, the Department will also make small matching payments so that a borrower’s principal balance still declines each month - up to $50 per month.
For borrowers already in default, the Department said delaying wage garnishments and tax offsets will give them time to consolidate loans or enter repayment arrangements so they can qualify for these options once they become available.
What This Means For Student Loan Borrowers
Aissa Canchola Bañez, Policy Director at Protect Borrowers, says, "After months of pressure and countless horror stories from borrowers, the Trump Administration says it has abandoned plans to snatch working people’s hard-earned money directly from their paychecks and tax refunds simply for falling behind on their student loans. Amidst the growing affordability crisis, the Administration’s plans would have been economically reckless and would have risked pushing nearly 9 million defaulted borrowers even further into debt. Earlier this month, a coalition of partners sent an urgent letter to ED urging them to do just this. We are pleased to see they have heeded our calls."
However, the pause does not erase student loan debt or stop interest from accruing on defaulted loans. The Department emphasized that defaulted loans will still be reported to credit bureaus, which can harm borrowers’ credit scores and affect access to housing, employment, or other loans.
Borrowers in default are being encouraged to contact the federal default loan servicer to review their options, including consolidation, repayment agreements, or rehabilitation. Taking action during the delay could help borrowers avoid collections once they resume and position them to benefit from the new repayment framework.
For borrowers who are not in default, the announcement does not change current payment obligations. Regular monthly payments remain due, and existing income-driven repayment plans stay in place until the new IDR option becomes available in 2026.
What Happens Next
Borrowers in default should use this window to review their student loan records, check eligibility for rehabilitation, and monitor announcements about the new IDR plan. Consolidating to rehabilitating your student loans now can save you unnecessary costs down the road.
It's important to remember that being in a repayment plan is always less expensive than being in default.
The coming months will likely bring more guidance from the Department as it prepares to roll out the new system and determine when garnishments and offsets will resume.
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Robert Farrington is the founder of The College Investor and is widely recognized as one of the nation’s leading voices on student loan debt and saving for college. He holds an MBA from UC San Diego Rady School of Management and has spent over 15 years researching, writing, and advising on student loans, 529 plans, financial aid programs, and saving and investing for young professionals.
Robert has been featured in the The New York Times, The Wall Street Journal, The Washington Post, NBC News, and Forbes, where he has been a regular personal finance contributor for over a decade. His work combines both professional expertise and personal experience – he successfully navigated his own student loan repayment journey and has helped thousands of readers do the same.
He is committed to making the intersection of personal finance and education transparent and accessible. You can learn more about Robert on the About Page or on his personal site RobertFarrington.com.