The American Financial Services Association (AFSA) announced that the restart of federal student-loan collections, beginning with wage garnishments for borrowers in default, is expected to have a modest impact on overall consumer spending but could place a heavier burden on lower-income and nonprime borrowers.
According to the Trump administration, plans are underway to initiate wage garnishment for defaulted federal student loan borrowers in early 2026. The process will commence with approximately 1,000 notices during the week of January 7 and will gradually increase each month. Borrowers are considered in default after being 270 days past due, and agencies must provide a 30-day notice before withholding begins.
AFSA referenced data from the New York Federal Reserve indicating that student-loan distress is re-emerging rapidly. In the first quarter of 2025, six million borrowers—about 14% of student-loan holders—were over 90 days past due or in default. Additionally, both 30-day and 90-day delinquency transition rates were measured at 8%. These figures highlight why collection actions are now intersecting with a larger spike in delinquencies.
Federal law permits administrative wage garnishment for federal student loan debts and limits withholding to 15% of disposable pay unless the borrower consents to more. The statute also mandates written notice at least 30 days before garnishment begins and provides rights to review records, pursue a repayment agreement, and request a hearing on the debt’s existence or amount or repayment terms—measures intended to prevent improper seizures.
AFSA is a national trade association representing the consumer credit industry, including providers of vehicle finance, mortgages, credit cards, and other installment lending. Based in Washington D.C., it advocates for policies that it says protect consumer choice and access to responsible credit. AFSA regularly publishes member-facing analysis on repayment, collections, and credit-market impacts related to federal and state policy changes.
