American taxpayers face a harsh financial reality as federal debt collection efforts resume with unprecedented intensity after years of pandemic-related suspension. The Trump administration has officially ended the grace period that protected millions of borrowers from aggressive collection methods, marking a significant shift in government policy. This development threatens to impact household budgets nationwide as families prepare for tax season and discover their expected tax refunds may be substantially reduced or eliminated.
Collections of federal student loans are about to resume after a five-year lapse
The Department of Education has reimposed wage garnishment and benefit withholding for defaulters on government-backed loans as of January 7, 2026. This brings an end to the longest collection pause in the history of the United States. The pause in collections came in March 2020 after the passage of the CARES Act. This move saw both the Trump and Biden administrations agree to its extension. Currently, about seven million delinquent borrowers are in default, and this number is forecast to reach ten million through new legislation.
This will affect borrowers who have defaulted on their payments for 270 days or more. Such borrowers are then classified as defaulters and are eligible for involuntary collection. As Abby Shafroth from the National Consumer Law Center explains, “aggressive approaches to collection could have financially destabilizing consequences for families” because the government is adopting a more aggressive approach than in the past.
The government acquires new powers in the confiscation of taxpayer property
The Treasury Offset Program has made it possible for federal agencies to offset the entire refund amount of taxes, as well as crucial credits like the Earned Income Tax Credit and the Child Tax Credit. This is the first complete taxable year since 2019 in which the Education Department will actually deduct from the tax refund in order for them to recoup a student loan amount. They can deduct the first 15% of a paycheck, 100% of a refund, or the first 25% of Social Security.
A notice to borrowers to last 30 days is necessary before any action towards garnishment is undertaken, and a right to request at a pending hearing to plead hardship or enter a rehabilitation program to stop collections. The government may initiate collections without a court order once loans become more than 360 days in default, to improve collections.
“Well, what we’re on the verge of now is 10 million Americans with federal student loans in default, and whereas some of the worst impacts of being in default had been waived, it appears as though the new administration been broadcasting the reinstatement of benefits of ending some of the worst methods of collections,” Shafroth said in an interview with News Nation.
Changes in legislation add to borrowers’ financial woes across the country
The Trump “One Big Beautiful Bill” adds new provisions that will further reduce loan options and repayment terms for future generations, and will similarly impact existing loan recipients by reducing the ability to defer payments. The act eliminates the Graduate PLUS Program and sets a lifetime borrowing level of $100,000 for graduates, and $200,000 for those seeking a medical and law degree, and is further contingent on Parent PLUS loans not to exceed costs of $65,000 for each dependent.
In regard to the act, deferment for job loss or economic hardship is eliminated, but borrowers are granted a second chance to rehabilitate a defaulted loan, which was only allowed once, now made possible twice. But this is because the “SAVE” repayment plan is finished, and seven million borrowers have been relieved through administrative forbearance since June 2024. The accruing of the interest on such loans began in August 2025, just before the start of debt collection in full force, for borrowers to get a favorable repayment plan.
