Trump Administration Resumes Student Loan Garnishments, Affecting Millions

The Trump administration has resumed wage garnishment for student loan borrowers in default, marking a significant shift after a period of relief during the COVID-19 pandemic. The repayment pause, which began in 2020, expired in September 2023, and the Supreme Court's decision in 2025 to strike down President Biden’s debt cancellation plan further complicated the situation. As a result, the Department of Education can now garnish wages, tax refunds, and federal benefits from defaulted borrowers, affecting millions of individuals across the country.

This move has intensified the financial burden on workers already struggling with student loan repayments. Approximately 20.5% of student loan borrowers have payments that are past due by 90 days or more, and around 5.3 million defaulted borrowers will receive notices from the Treasury Department about potential wage garnishment. The Department of Education emphasized that resuming collections protects taxpayers from bearing the cost of federal student loans, stating that there will be no mass loan forgiveness.

Employers are increasingly recognizing the need to support their employees in managing student loan debt. Several strategies can be implemented to alleviate this financial pressure, including matching student loan contributions to retirement plans, offering paid time off exchanges, providing financial planning counseling, and establishing educational assistance programs.

Matching student loan contributions to retirement plans is one effective method. The Secure 2.0 Act of 2022 allows companies to use funds intended for matching employee retirement contributions to help pay off student loans. This approach helps employees who might otherwise miss out on contributing to their retirement plans due to the financial strain of student loan debt. While this benefit is financially straightforward for employers, the administrative burden has limited its adoption. Only a small percentage of companies have implemented this benefit, but as the student loan crisis worsens, more businesses may consider it.

Paid time off (PTO) exchanges are another option. Companies can allow employees to exchange unused PTO for funds to pay off student loan debt. This benefit is cost-effective for employers as they have already budgeted for the PTO. However, it comes with administrative challenges, including compliance with state laws regarding PTO usage. Critics argue that such programs may incentivize employees to disregard work-life balance, potentially leading to increased stress and burnout.

Providing financial planning counseling is a straightforward and impactful way to assist employees with student loans. Many borrowers have multiple loans with varying interest rates and timelines, making it difficult to manage payments effectively. Financial counseling can help employees prioritize their loans and allocate their paychecks appropriately. Additionally, personalized assistance can ease worker anxiety around their finances and help with loan refinancing to secure better interest rates.

Educational assistance programs have long been used by employers to help workers fund their education. In 2020, these programs were expanded to include the ability to use funds for paying off student loan debt. However, employers have expressed concerns about verifying that the money is used as intended. Despite these challenges, experts are confident that the program will be made permanent through legislation, providing a valuable tool for employers to support their employees.

In summary, the resumption of wage garnishment for student loan borrowers in default has highlighted the urgent need for employers to offer benefits that help alleviate this financial burden. By implementing strategies such as matching student loan contributions to retirement plans, offering PTO exchanges, providing financial planning counseling, and establishing educational assistance programs, employers can significantly improve the financial wellbeing of their employees.