How do student loan offsets and wage garnishment work?

When federal student loans go into default (typically after 270 days of missed payments), the U.S. Department of Education and other federal agencies gain additional collection powers. Two common actions are:

  • Treasury or refund offsets: the Treasury Offset Program (TOP) can seize eligible federal payments — most commonly federal tax refunds — to repay defaulted federal student loans. TOP can also apply to some other federal payments depending on the debt and benefit type [U.S. Department of Education; Treasury Offset Program].
  • Administrative wage garnishment (AWG): for defaulted federal loans, the Department of Education can garnish a borrower’s pay without a court order. AWG generally takes up to 15% of disposable pay after required deductions; the borrower must receive a notice and has the right to a hearing [studentaid.gov].

Private student loans are different: private lenders typically must sue and obtain a court judgment before garnishing wages, and state laws affect how much can be taken.

Source links: U.S. Department of Education (studentaid.gov), Consumer Financial Protection Bureau (consumerfinance.gov), U.S. Treasury (treasury.gov).

Who is at risk?

  • Any borrower with a federal loan in default (default usually occurs after about 270 days of missed monthly payments).
  • Borrowers receiving federal payments or tax refunds that are eligible for offset.
  • Holders of private loans can also face garnishment, but the process depends on state law and whether the lender first obtains a court judgment.

For more on when a loan is considered in default, see our glossary entry “What Counts as Default Under Federal Student Loan Rules.”

Typical signals and real-world effects

  • You receive a notice from your loan servicer that your loan is in default and that offset or AWG is possible.
  • Your federal tax refund is reduced or fully taken when TOP applies.
  • Your employer begins withholding a fixed portion of your disposable earnings for the loan.

Example: Administrative wage garnishment may reduce a borrower’s take-home pay by up to 15%, which can make covering rent, utilities, and monthly expenses difficult.

How to stop or prevent offsets and garnishment

  1. Contact your loan servicer immediately. If you haven’t received a formal notice, ask for loan status details and the specific debt held.
  2. Rehabilitate the loan: Federal loan rehabilitation can remove default status after you make a series of agreed-upon, on-time payments (commonly nine payments within ten months). Rehabilitation also ends collection fees and stops offsets and AWG while you complete the program [See: Steps to Rehabilitate a Defaulted Student Loan].
  3. Consolidate the loan: Direct consolidation can reinstate loans into good standing if you meet consolidation requirements and include all defaulted loans.
  4. Enroll in an income-driven repayment (IDR) plan: if you regain repayment status, IDR lowers monthly payments based on income and family size.
  5. File an appeal or request a hearing: before AWG begins you must receive notice and can request a hearing to dispute the garnishment or present a repayment plan.
  6. For tax refunds already offset: contact the Treasury Offset Program and your loan servicer to confirm debt details and discuss rehabilitation or repayment options. See our piece on “How Refund Offsets Work: Child Support, Student Loans, and Other Debts.”

Special considerations

  • Social Security and some federal benefits have protections, but certain federal offsets may still apply in limited circumstances; always verify your situation with your servicer and benefit administrator (e.g., SSA) before assuming protection.
  • Private loans: because lenders usually must sue to garnish wages, get legal help if a collector threatens garnishment to verify the lender’s legal standing.
  • Bankruptcy rarely discharges student loans; relief requires a specific, difficult showing of undue hardship.

Practical tips I use with clients

  • Monitor your federal student loan status at studentaid.gov and keep contact details current with your servicer.
  • If you get a notice, act quickly—administrative processes move fast and delays can cost you refunds or months of wages.
  • Keep records of all notices, payments, and communications; documentation helps in hearings and rehabilitation.

Useful resources

Related FinHelp guides:

Professional disclaimer: This article is educational and not individualized financial or legal advice. If you are facing offsets or garnishment, consult a qualified student loan counselor, an attorney, or your loan servicer for guidance tailored to your situation.