Blogging for Change

Student Loan Wage Garnishments Temporarily Placed on Hold

by Jesse Campbell on
2/2/2026
in Managing Student Loans
Young man reviewing financial paperwork.

Federal student loan borrowers living in limbo for close to six years now will remain up in the air for a few more months at least.

The Department of Education had previously stated that they would begin using all methods at their disposal (wage garnishment and seizing tax refunds chief among them) to begin collecting money from federal student loan borrowers in default at the beginning of 2026.

On January 16, 2026, however, the Department of Education temporarily reversed course and will delay seeking to collect money from borrowers in default until at least July, when new student loan repayment plans are scheduled to become available.

If your federal student loans are in default or are rapidly approaching default, this temporary reprieve is the time to take action to protect yourself from the worst possible outcomes.

As MMI's Amy Lins says, "Defaulting on a federal student loan comes with some pretty steep penalties - accelerated interest and fees, negative credit reporting, potential for a lowered credit score, and the real possibility of wage garnishment and treasury offset."

Thanks to this delay, there's still time to avoid these consequences, but you need to take action immediately.

How to take advantage of the delay on student loan collection activity

Consolidate your student loans

Rolling one or more defaulted federal student loans into a new Direction Consolidation Loan may be the fastest way to get yourself out of default. The consolidation process usually requires that you sign up for an income-driven repayment plan or make three consecutive, full monthly payments on your defaulted loan(s) first, but once the process is complete you'll no longer be in default (and under no threat of garnishment or other collection action).

Long-term this method may be costlier than some alternatives, thanks to the added interest charges being rolled into the new loan total. The negative marks on your credit report from the defaulted loans also won't go away, no matter how well you manage the new loan. But if you qualify, consolidation is a good way avoid the many costs associated with default and wage garnishment.

Rehabilitate your student loans

Student loan rehabilitation lets you keep your original loans with their original terms (and benefits) after a temporary rehabilitation period. The requirements for rehabilitation will depend on the loan type, but the process is generally the same:

  • You'll need to reach out to your loan holder to discuss a potential rehabilitation. 
  • After reviewing the terms of the rehabilitation program, you'll sign and return a rehabilitation agreement.
  • The terms of the agreement may vary slightly, but you'll typically be required to make nine payments during a period of 10 consecutive months. The payments will have to be received within 20 days of the due date.
  • The actual payment amount is not based on you loan amount, but on your discretionary income. 
    •  To get your discretionary income:
      • Find your household size and poverty guidelines on this chart.
      • Take the poverty guideline for a family your size and multiply it by 150%.
      • Find the adjusted gross income (AGI) from your most recent tax return.
        • Your discretionary income is the difference between your AGI and 150% of the poverty guidelines for a family your size.
        • Example: You are a family of four with an AGI of $100,000. The poverty guideline for a family that size is $33,000. $33,000 x 150% = $49,500.
          • $100,000 - $49,500 = $50,500 (this would be your discretionary income)
      • The payment during these student loan rehabilitation programs is typically 15% of your monthly discretionary income.

If you complete the nine rehab payments as agreed, the loan will come out of default and you'll go back to making regular loan payments. As a bonus, the fact that your loan was in default will be removed from your credit report (although any missed payments that led to the default won't be removed).

Get your other debts under control

If you've been using the extended student loan forbearance and runway periods as an opportunity to ignore your student loan debts, you're far from alone. It's no secret that everything seems to be more expensive and wages aren't keeping up. Suddenly having to worry about student loan payments again can feel crushing, especially since federal student loan debt doesn't really go away.

Given that, when dealing with student loans it's always a good idea to consider the rest of your expenses and debts. You may have no choice but to repay your student loans in full under the original terms, but there may be more options for dealing with credit card debt, reducing living expenses, increasing income, and finding flexibility outside of your student loan payments.

A great place to start is always free financial counseling from MMI. We're available online and over the phone, 24/7, with advice on how to strengthen your budget and powerful debt relief solutions to help you save money and get out of debt quickly.

Tagged in Loans, Student loan options, Debt collection

Jesse Campbell photo.

Jesse Campbell is the Content Manager at MMI, with over ten years of experience creating valuable educational materials that help families through everyday and extraordinary financial challenges.

Recommended Articles

Young woman using smartphone and making purchase with credit card.
Do Debt Differently
With MMI, you can get out of debt 7x faster than doing it alone.
Learn how
Learn more
  • Better Business Bureau A+ rating Better Business Bureau
    MMI is proud to have achieved an A+ rating from the Better Business Bureau (BBB), a nonprofit organization focused on promoting and improving marketplace trust. The BBB investigates charges of fraud against both consumers and businesses, sets standards for truthfulness in advertising, and evaluates the trustworthiness of businesses and charities, providing a score from A+ (highest) to F (lowest).
  • Financial Counseling Association of America Financial Counseling Association of America
    MMI is a proud member of the Financial Counseling Association of America (FCAA), a national association representing financial counseling companies that provide consumer credit counseling, housing counseling, student loan counseling, bankruptcy counseling, debt management, and various financial education services.
  • Trustpilot Trustpilot
    MMI is rated as “Excellent” by reviewers on Trustpilot, a global, online consumer review platform dedicated to openness and transparency. Since 2007, Trustpilot has received over 116 million customer reviews for nearly 500,000 different websites and businesses. See what others are saying about the work we do.
  • Department of Housing and Urban Development - Equal Housing Opportunity Department of Housing and Urban Development
    MMI is certified by the U.S. Department of Housing and Urban Development (HUD) to provide consumer housing counseling. The mission of HUD is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD provides support services directly and through approved, local agencies like MMI.
  • Council on Accreditation Council On Accreditation
    MMI is proudly accredited by the Council on Accreditation (COA), an international, independent, nonprofit, human service accrediting organization. COA’s thorough, peer-reviewed accreditation process is designed to ensure that organizations like MMI are providing the highest standard of service and support for clients and employees alike.
  • MMI is a proud member of the National Foundation for Credit Counseling (NFCC) National Foundation for Credit Counseling
    MMI is a longstanding member of the National Foundation for Credit Counseling® (NFCC®), the nation’s largest nonprofit financial counseling organization. Founded in 1951, the NFCC’s mission is to promote financially responsible behavior and help member organizations like MMI deliver the highest-quality financial education and counseling services.