The U.S. Department of Education announced in a press release on Jan. 16 they would temporarily delay the involuntary collections on federal student loans, including wage garnishing and federal tax return withholding.
Wage garnishing, according to the Federal Student Aid website, requires employers to “withhold a portion of your pay and send it to your loan holder to repay your defaulted loan.” Loan holders are allowed to withhold up to 15% of “disposable pay” to repay the loan, and the withholding continues until the default status is resolved or the loan is paid in full.
The announcement also delays the Treasury Offset Program, which allows the Department of Education to ask that the Department of The Treasury withhold money from defaulted borrowers’ federal tax returns according to the National Association of Student Financial Aid Administration’s Managing Editor Hugh T. Ferguson.
According to the press release, the delay would allow the department to implement the reforms of the Working Families Act and give borrowers more options for repayment.
The Working Family Tax Cuts Act, better known as One Big Beautiful Bill, was passed by Congress on July 4, 2025. According to the department press release, the act reduces the number of federal student loan repayment plans, “eliminating a confusing maze of options.”
Under Secretary of Education Nicholas Kent said in the press release that President Donald Trump’s administration is committed to helping borrowers find clear options for loan repayment, “which will support a stronger financial future for borrowers and enhance the long-term health of the federal student loan portfolio.” He said the delay in involuntary collections would allow the administration to make “significant improvements to our broken student loan system.”
As of now, there are many federal student loan repayment options. The fixed payment plans include Standard Repayment Plan, the Graduated Repayment Plan and the Extended Repayment Plan, which “base your monthly payment amount on how much you owe, your interest rate, and a fixed repayment time period,” according to the Federal Student Aid website.
There are also currently several income-driven repayment plans, which are based on the borrower’s income and family size. The different plans include the Income-Based Repayment Plan, the Income-Contingent Repayment Plan, the Pay As You Earn Repayment Plan and the Saving on a Valuable Education Plan, according to Federal Student Aid.
Under One Big Beautiful Bill, borrowers will be able to choose between a single standard repayment plan — which is usually a 10-year fixed payment plan, according to the Federal Student Aid website — or an income-driven repayment plan including a new kind “that waives unpaid interest for borrowers with on-time payments whose payments do not fully cover accrued interest, and that includes small matching payments from the Department [of Education] in certain circumstances to ensure that outstanding principal is reduced each month,” the press release said. The new plan will be available to borrowers on July 1, 2026.
“The delay in collections will give defaulted borrowers additional time to evaluate these new repayment options once they consolidate their loans or complete a repayment or rehabilitation agreement,” the press release said.
The new reforms will also give borrowers a second chance to rehabilitate defaulted loans. According to Federal Student Aid, one option to get out of default is to make “a certain number of consecutive, on-time payments to your loan holder under a rehabilitation agreement.” Before One Big Beautiful Bill, borrowers were only allowed one opportunity to rehabilitate their loans, the press release said.
The department has not yet announced a date when the involuntary loan collections would resume.