Writer: Andrew Allen
Editor: Lillian Guevara-Castro
Reviewer: Adam West
Key Takeaways
Borrowers in default of their student loans may soon receive a notice from the Department of Education informing them that the agency is moving to garnish their wages.
Large-scale wage garnishment stands to impact subprime lenders as individuals receiving a notice from the department will likely soon have less access to disposable income, which may affect their ability to repay other credit obligations.
The first batch of notices is expected to go out in early January to roughly 1,000 borrowers who have defaulted on their loans, a spokesperson from the Department of Education told National Public Radio (NPR).
Garnishing the wages of only 1,000 borrowers isn’t likely to cause any significant adverse effects to any single lender. But the same spokesperson indicated that the number of notices on wage garnishments the department sends will almost certainly grow each month throughout 2026.
The initial stack of wage garnishment notices will go out to borrowers in early January.
Borrowers who haven’t made any payments on their loans in more than 270 days face potential action from the federal government.
That can include collecting Social Security benefits and tax refunds from borrowers as well as directing their employers to withhold amounts on a person’s pay of up to 15%, according to the NPR report.
The news that wage garnishments, which were on pause following the pandemic, will resume may also discourage some borrowers from taking on new forms of debt this year.
Other Financial Pressures Also Mount
Lenders will have a hard time estimating how many borrowers will receive wage garnishment notices this year.
The department recently released data revealing that close to 12 million borrowers have fallen behind on their federal student loans. But not all of those people have defaulted on their student loans, and the resumption of wage garnishment may motivate a portion of them to pay back the monies they borrowed.
Subprime lenders fine-tuning their growth strategies for 2026 should take into account how certain borrowers may be facing other financial pressures.
Betsy Mayotte, President and Founder of The Institute of Student Loan Advisors, told NPR that the timing of the resumption of wage garnishment efforts may not be ideal for everyone.
Many people in the U.S. are encountering increases in the cost of their health care plans in 2026.
“It will coincide with the increase in health care costs for many of these defaulted borrowers,” Mayotte said, in reference to the rising costs of health care for people who’ve enrolled in Affordable Care Act plans. “The two will almost certainly put significant economic strain on low and middle income borrowers.”
Companies wanting to avoid lending to borrowers who have defaulted on student loans and face wage garnishment can stop sending offers for new credit to that segment of the population.
Lenders can also limit credit line increases for borrowers who have stopped making payments on their student loans to reduce the risk of offering more money to consumers who may not be able to pay it back.
