Self-Employed? You Might Dodge This Student Loan Penalty
Wage garnishment starts soon—but gig workers may have a hidden advantage.
Wage Garnishment for Defaulted Student Loans Begins This Summer: What You Need to Know
Federal student loan collections are resuming this summer, and for borrowers in default, that means one thing: wage garnishment is back on the table.
After more than four years of paused collections during the pandemic, the Department of Education—under the Trump administration—has officially confirmed its plan to restart involuntary collection actions, including wage garnishment and benefit offsets. Here’s what you need to know to protect yourself and what steps you can take if you’re at risk.
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Federal student loan collections, including wage garnishment, were paused in March 2020 as part of the COVID-19 relief efforts. The Biden administration extended this pause several times to give struggling borrowers room to recover and catch up.
But the Trump administration has now reversed course, arguing that taxpayers shouldn’t bear the burden of unpaid loans. “Borrowers should pay back the debts they take on,” said Education Secretary Linda McMahon in an April 22 video message.
What to Expect: Key Timeline and Actions
Summer 2025: The Treasury Department will begin mailing notices to approximately 5.3 million borrowers who are currently in default.
As Early As June: Garnishments could begin on federal benefits like Social Security. Up to 15% of a monthly benefit may be seized, but recipients must be left with at least $750 per month.
Borrowers should act now to review their loan status and explore their options before collections begin.
How Much Can Be Taken from Your Pay?
The federal government can garnish up to 15% of your disposable income (after taxes), but you must be left with at least $217.50 per week, which is 30 times the federal minimum wage ($7.25/hour).
If you're receiving Social Security, you must retain at least $750 per month after garnishment.
What If You're Self-Employed or a Gig Worker?
Good news: wage garnishment typically applies to W-2 earners. If you earn income as an independent contractor or receive 1099 income, it is more difficult for the government to garnish your wages because there is no traditional employer involved.
Can You Fight Wage Garnishment?
Yes. You are entitled to a 30-day notice before garnishment begins.
During that period, you can request a hearing before an administrative law judge to challenge the garnishment. You may be able to avoid garnishment if:
You've recently been unemployed.
You recently filed for bankruptcy.
Garnishment would cause financial hardship.
Instructions for requesting a hearing should be included in the garnishment notice.
What Should You Tell Your Employer?
Your employer will likely be familiar with garnishment procedures, which are common for other debts like child support or unpaid taxes.
Importantly, your employer cannot fire you because of a wage garnishment order related to student loans.
How to Get Out of Default
There are several ways to resolve your defaulted student loans and avoid garnishment altogether:
Loan Rehabilitation: Make nine affordable, consecutive payments. Note: this option can only be used once.
Loan Consolidation: Combine your defaulted loan into a new Direct Consolidation Loan and enroll in an income-driven repayment (IDR) plan. Be aware that this is not available if your wages are already being garnished.
Income-Driven Repayment: If you’re not yet in default, switching to an IDR plan can lower your monthly payments and help you stay current.
Forbearance or Deferment: Request a retroactive forbearance to cover missed payments or apply for a temporary deferment while transitioning to an IDR plan.
According to Carolina Rodriguez, Director of the Education Debt Consumer Assistance Program, requesting a retroactive forbearance and enrolling in an IDR plan can help avoid wage garnishment.