The federal government has strong powers to compel repayment of defaulted federal student loans. But there are limits to how much of the borrower’s income and benefits can be seized to repay the debt.

Garnishment vs. Offset

When a borrower defaults on a federal student loan, the federal government can seize part of the borrower’s paycheck to repay the debt. This is called wage garnishment. It is implemented by the U.S. Department of Education sending a wage garnishment order to the borrower’s employer. 

The federal government can also intercept income tax refunds and part of the borrower’s Social Security disability and retirement benefit payments. This is called an offset. It is implemented by the Bureau of the Fiscal Service at the U.S. Department of the Treasury through the Treasury Offset Program (TOP).

Caps on Garnishment of Income and Benefits

The federal government can garnish up to 15% of the borrower’s disposable pay to repay a defaulted federal education loan, including Federal Stafford Loans, Federal Parent PLUS Loans, Federal Grad PLUS Loans and Federal Consolidation Loans.

Disposable pay is the borrower’s pay after subtracting health insurance premiums and any amounts that are required by law to be deducted (e.g., Social Security taxes and income tax withholding).

The wage garnishment is done administratively, without requiring a court order.

A higher wage garnishment percentage is allowed if the federal government sues the borrower and gets a court judgment against the borrower. Borrowers can also voluntarily agree to a higher wage garnishment amount.

The federal government can also offset up to 15% of Social Security disability and retirement benefit payments.

The full amount of income tax refunds can be offset.

Reductions in Garnishment Percentage

Borrowers must be left with at least 30 times the federal minimum wage per week after the wage garnishment. Since the federal minimum wage per week is $7.25 per hour, that leaves the borrower with at least $217.50 per week. So, if the borrower earns less than $13,306 a year, the wage garnishment percentage will likely be less than 15%. 

The offset of Social Security benefit payments similarly requires the borrower to be left with at least $750 per month. 

If the borrower is already subject to wage garnishment for other federal debts, the total amount withheld for all administrative wage garnishment cannot exceed 25% of the borrower’s disposable pay. 

The federal government cannot garnish wages if the borrower has been in their current job for less than 12 months and borrower’s previous employment was involuntarily terminated.