Student Loan Payments to Change Next Month

Starting in January 2026, millions of Americans with federal student loans will face significant shifts in how their debt is managed, as the federal government resumes wage garnishments and some forms of loan forgiveness become taxable once again.
According to the Education Data Initiative’s August report, 42.5 million people owe federal student loans, with total balances nearing $1.7 trillion.
Wage Garnishment Resumes
After a coronavirus pandemic-era pause under the Biden administration, the U.S. Department of Education has announced that it will begin deducting wages from borrowers in default on their federal student loans.
The effort is set to kick off the week of January 7, when roughly 1,000 borrowers will receive notifications that a portion of their paychecks may be withheld to cover overdue balances. Notices will then expand to larger groups each month, the department told The Washington Post.
Being in default on a federal student loan means the borrower has gone a long period without making required payments and failed to bring the loan back into good standing.
For most federal student loans, default status starts after 270 days—about nine months—of nonpayment. Once a loan is in default, the entire balance becomes due immediately, and the government gains broader powers to collect the debt.
Federal law requires that borrowers receive at least 30 days’ notice before any garnishment begins. During this period, they can request a hearing, repay the debt in full, or explore alternative repayment arrangements. Under the Higher Education Act, the government is permitted to withhold up to 15 percent of a borrower’s after-tax income until the loan is resolved or the borrower exits default.
Federal estimates from earlier this year suggest more than 5 million borrowers had not made a payment in over a year—placing them in default—while another 4 million were in late-stage delinquency before collections resumed in May 2025.
Forgiveness Will Be Taxable Again
Borrowers who anticipated relief from taxes on loan forgiveness will face new considerations next year. The American Rescue Plan of 2021 temporarily excluded forgiven federal student loans from taxable income, but this exemption is set to expire at the end of 2025.
Under the One Big Beautiful Bill Act, signed into law by President Donald Trump in July, this tax relief was not extended. Beginning January 1, 2026, student loan forgiveness granted through income-driven repayment plans will again be considered taxable income, potentially creating a larger financial burden for borrowers who previously counted on tax-free relief.
Some programs remain unaffected, however. Forgiveness granted through Public Service Loan Forgiveness and other targeted initiatives will continue to be tax-free, offering relief to certain borrowers who meet the eligibility requirements.