Beginning the first week of January, the era of student loan leniency officially ends.
The Trump administration will resume administrative wage garnishment for defaulted federal student loan borrowers, marking the first time these “paycheck raids” have occurred since the pandemic-era pause began nearly six years ago.
Starting on Jan. 7, 2026, the Department of Education will dispatch the first wave of notices to roughly 1,000 defaulted borrowers. The Trump administration plans to scale the efforts month-over-month, eventually targeting the estimated 5 million Americans currently in default.
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Under federal law, the government can seize up to 15% of a borrower’s disposable income without a court order.
For a worker earning $50,000 a year, this could mean a loss of several hundred dollars per month—a “raid” that often happens with just 30 days’ notice.
Furthermore, the administration has already begun the Treasury Offset Program, which allows for the seizure of tax refunds and Social Security benefits.
While this creates a financial crisis for millions, it represents a massive tailwind for private lenders and refinancers like SoFi Technologies, Inc. (NASDAQ:SOFI) and SLM Corp. (NASDAQ:SLM).
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Increased Demand: As the threat of garnishment looms, borrowers with higher incomes or improved credit scores are incentivized to refinance their federal debt into private loans to avoid the 15% seizure and lock in structured repayment plans.
Refi Volume: Private lenders typically see a surge in volume when federal repayment terms tighten. SoFi, which famously sued to end the payment pause in 2023, is positioned to “skim the cream” of the federal portfolio—onboarding the most reliable borrowers who are now desperate to escape the government’s collection reach.
As the “on-ramp” protection expires and the SAVE plan faces legal termination, the student loan landscape is shifting from relief to recovery. For many, the only way to protect their paycheck from the Jan. 7 restart may be to exit the federal system entirely.
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