The U.S. Department of Education has announced a temporary delay in involuntary collections on federal student loans, including Administrative Wage Garnishment and the Treasury Offset Program. This pause is intended to allow time for the implementation of new student loan repayment reforms introduced under the Working Families Tax Cuts Act.
These changes are designed to simplify the process for borrowers by reducing the number of available repayment plans. Borrowers will be able to choose between a single standard repayment plan or an income-driven repayment (IDR) plan that fits their financial situation. A new IDR plan will also become available starting July 1, 2026, which will waive unpaid interest for those making on-time payments that do not cover accrued interest. In some cases, small matching payments from the Department will help reduce outstanding principal each month.
The Act introduces another significant change by allowing borrowers a second opportunity to rehabilitate defaulted loans. Previously, only one rehabilitation was permitted by law. The current delay in collections gives these borrowers more time to start this process and take advantage of the new options after consolidating their loans or completing an agreement.
Under Secretary of Education Nicholas Kent stated: “After the Biden Administration misled borrowers into believing their student loans would not need to be repaid, the Trump Administration is committed to helping student and parent borrowers resume regular, on-time repayment, with more clear and affordable options, which will support a stronger financial future for borrowers and enhance the long-term health of the federal student loan portfolio.” He added: “The Department determined that involuntary collection efforts such as Administrative Wage Garnishment and the Treasury Offset Program will function more efficiently and fairly after the Trump Administration implements significant improvements to our broken student loan system.”
While collections are paused, borrowers in default are encouraged by the Department to work with their loan servicer to resolve their defaulted loans. The Department also reminds borrowers that defaults are reported to credit agencies and can negatively affect credit reports.
