Student Loan Default: Credit, Wage Garnishment & How to Recover

Defaulting on your student loans can feel like falling into a financial black hole. You might miss one payment thinking you’ll catch up next month, but as time passes, the consequences start to multiply. For federal student loans, default happens when you fail to make payments for 270 days—about nine months. Once that happens, your loan is considered in serious delinquency, and the impact can spread far beyond your student debt.

Key Points

• Student loan default starts after 270 days of missed payments.
• Wage garnishment may resume this winter with a 30-day notice.
• Up to 15% of disposable income can be garnished for defaulted loans.
• Default triggers tax refund and Social Security benefit offsets.
• Rehabilitation, consolidation, and IDR plans can help you exit default.

How Default Affects Your Credit Score

Your credit score is one of the first casualties of default. A federal student loan default is reported to all three major credit bureaus—Experian, Equifax, and TransUnion—and can stay on your credit report for up to seven years from the date of default.

This can make it harder to:

• Get approved for new loans or credit cards
• Rent an apartment or qualify for a mortgage
• Secure favorable interest rates

Even after you resolve the default, it takes time and consistent payment behavior to rebuild your credit. However, the sooner you act, the sooner you can begin the process of repairing your financial reputation.

Wage Garnishment Is Returning Soon — Potentially As Early As This Winter

After years of paused payments, many borrowers haven’t had to think about federal student loan default, wage garnishment, or collections. But that relief is coming to an end. The U.S. Department of Education is expected to restart federal student loan collections in the near future—potentially as early as this winter.

Although no wage garnishment notices have been sent out yet, the Department of Education must give borrowers a 30-day advance notice before garnishment begins. After that notice goes out, your employer may be required to withhold up to 15% of your disposable income—without a court order.

For many borrowers, especially those in high-cost-of-living areas, losing even a fraction of your paycheck can make it harder to cover rent, groceries, or childcare. If you’re wondering how to get out of student loan collections before garnishment starts, now is the time to act.

Options like loan rehabilitation, consolidation, or forgiveness pathways such as Public Service Loan Forgiveness (PSLF) can help you avoid garnishment and regain financial stability before collections resume.

Tax Refund and Social Security Offsets

Default doesn’t stop at your paycheck. The federal government has powerful collection tools, including Treasury offsets. That means they can take:

• Your federal and state tax refunds
• Social Security payments
• Certain federal benefits

Imagine expecting a $2,000 refund only to discover it’s been intercepted to cover your defaulted loan. That financial shock can disrupt your entire budget and create more stress at tax time.

How Long Does Default Stay on Your Record?

Default can remain on your credit report for seven years from the date it was first reported. During that time, you may face higher interest rates on other loans and may struggle to get approved for new credit.

However, there’s good news: once you’ve rehabilitated or consolidated your loans, your status will change to “current” or “paid as agreed.” Lenders will see that you’ve taken steps to repair your credit, and your score can start to improve.

How to Limit or Repair the Damage

The most important thing is to act—default doesn’t have to be permanent. Here’s how you can get back on track:

• Loan rehabilitation: Make nine on-time monthly payments within ten months. After rehabilitation, the default is removed from your credit report.
• Loan consolidation: Combine your loans into a new Direct Consolidation Loan and choose a repayment plan based on your income. This can also restore eligibility for forgiveness programs like Public Service Loan Forgiveness (PSLF).
• Seek employer support: Many employers now offer student loan repayment assistance programs or financial wellness benefits that can help you manage debt and rebuild financial stability.

Why Now Is the Time to Act

With wage garnishment expected to resume soon, waiting can cost you more than money—it can cost you control. By getting out of default now, you can protect your income, preserve your tax refunds, and start rebuilding your financial health.

Borrowers who act early often discover relief programs they didn’t know existed—like IDR plans, PSLF, or employer-sponsored assistance through platforms like PeopleJoy’s borrower support services, which guide employees through repayment, forgiveness, and rebuilding credit.

Take the First Step Toward Financial Recovery

Default may feel overwhelming, but it’s not the end of your financial journey. With the right guidance and tools, you can recover your credit, stop wage garnishment, and regain control over your money.

If your employer offers PeopleJoy, reach out today to learn how to:

• Exit default and avoid future collection actions
• Enroll in affordable repayment or forgiveness programs
• Build a clear plan toward long-term financial wellness

Your next paycheck shouldn’t be a source of anxiety. It should be a step toward freedom.
Start your recovery journey today.