The following summarizes this new development and how freelancers can use this deferred student loan garnishment to get ahead of potential financial pressure and avoid the negative consequences of garnishment. As you may know, garnishment on your radar has great potential to disrupt cash flow, jeopardize your tax planning, and create other financial challenges.
What’s behind the delay?
The Department of Education has been working to transition borrowers to the new repayment landscape following the end of the pandemic-era payment holiday. This includes:
- Implementation of the new income-driven repayment plan SAVE
- Updating service systems
- Addressing widespread service failures and borrower confusion, and
- Ensure that borrowers receive required notices before repossession resumes.
As a result, the DOE has postponed the restart of wage garnishments and other involuntary collection actions for defaulting borrowers.
What the DOE wage garnishment delay is Not Doing
It is important to realize that this delay does not negate your default on the loan. It also does not prevent interest from accruing or guarantee long-term protection against garnishment. Think of it as a grace period, not a solution.
It is important to note that the U.S. Department of Education (DOE) garnishment is done through an “Administrative Wage Garnishment (AWG)” action – where the DOE can garnish up to 15% of disposable wages for defaulted federal student loans without a court order. The delay in implementing involuntary collections also includes the AWG’s action.
Here are some key ways to take advantage of the slowdown:
Discover the IRS Fresh Start program
The Ministry of Education New beginning The initiative allows defaulted borrowers to bring their loans back into good standing without making a lump sum payment. Benefits include:
- Removal of default from your credit report
- Stops collections
- Provides access to flexible repayment options, such as income-driven repayment spans (IDR).
- Restoration of eligibility for federal assistance and reimbursement plans
- Protection against future garnishment once you enroll in a repayment plan
The Fresh Start program remains one of the most important tools available to taxpayers who have fallen behind on their tax obligations. The program was originally launched in 2011 and has been expanded several times since then. It aims to make it easier for individuals and small businesses to pay off tax debts, avoid liens and get back into compliance.
The following defaulted loans are eligible for the Fresh Start program:
- Borrowers defaulted on William D Ford Federal Direct Loan Program loans,
- Federal Family Education Loan (FFEL) Program Loans, or
- Defaulted HEAL loans.
The program is not a single application or form, it is a series of relief options that the IRS has made more accessible. These include:
1. Extensive forward agreements
- This allows taxpayers to pay their tax debt over time, often up to 72 months.
- Requires fewer financial disclosures for debts below certain thresholds.
2. Offer in Compromise (OIC)
- This allows qualifying taxpayers to pay their tax debt for less than the full amount owed.
- Eligibility is based on financial hardship and the IRS ability to pay formulas.
3. Penalty relief/reduction
- This tool could reduce or eliminate penalties for taxpayers who have reasonable cause or who qualify for an initial tax credit.
- Particularly useful for those who have fallen behind due to temporary financial difficulties.
4. Higher threshold for tax law
- The IRS generally won’t file a tax lien unless you owe more than $10,000, an increase from the previous $5,000 threshold.
Eligibility for the Fresh Start program varies by lighting option, but typical requirements include:
- Owed less than $50,000 in tax debt (exceptions may apply).
- Submitting all necessary tax returns.
- Not active in bankruptcy.
- Have the ability to make monthly payments or demonstrate financial hardship.
- Willingness to enter into a payment plan or file an OIC.
Taxpayers with balances over $50,000 can still qualify by providing additional financial documentation or making a down payment.
For taxpayers who have fallen behind, whether due to unexpected expenses, business challenges or missed returns, the Fresh Start program can provide a structured, realistic path to resolving tax debt.
5. Enroll in an income-driven repayment plan
Once you exit standard student loan debt, Income-Drive Repayment Plans (especially the new SAVE plan) can lower your monthly payment based on your income. For freelancers with fluctuating income, this can provide stability and predictability.
6. Check your tax situation
Wage garnishment can complicate quarterly estimated taxes and cash flow planning. Use this delay to:
- Reassess your quarterly tax strategy
- Adjust your estimated payments
- Evaluate whether you need to set aside more (or less) for taxes
7. Build a money cushion
If you anticipate future seizures, building up even a small reserve can help soften the impact. Freelancers often work with small margins, so even a modest buffer can make a meaningful difference.
8. Communicate with your loan servicer
Servicers are required to notify borrowers before resuming foreclosures. Make sure your contact information is current and that you open every email or letter you receive.
What will happen when the DOW wage garnishment eventually resumes?
When DOE restarts involuntary collections, they can garnish:
- To 15% of the available wage for federal loans
- Federal tax refunds
- Certain federal benefits
For freelancers who pay themselves through payroll (e.g. S-corps), wage garnishment can directly reduce take-home pay. For sole traders, the impact may come in the form of compensation from the treasury rather than deductions from wages.
From July 1, 2026, new annual borrowing limits will be set:
Professional students: up to $50,000 per year
Graduate students: up to $20,500 per year
Parent Borrowers: Up to $20,000 per year
Repayment structure: Loans have a standard term of 10 to 25 years, depending on the size of the debt.
Take advantage of the temporary DOE wage garnishment pause
The Department of Education’s delay in wage garnishment is a temporary reprieve, not a permanent solution. If you are affected by this delay, you can use this time to get ahead of potential financial disruption by exploring the Fresh Start program, enrolling in an income-driven repayment plan, and taking some of the relevant actions above to strengthen your financial foundation.
As always, proactive planning is your best defense. If you’re unsure how these changes will impact your tax situation or business structure, consulting with a tax professional who understands the freelance landscape can help you make informed decisions.
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