2026 means the U.S. government will collect unpaid student loans again after five years of pauses and protection during the pandemic, the thing is that this time it will be stricter. Basically, some people could lose part of their salary, their tax refunds, and even their Social Security benefits. So, let’s find out what’s happening with student loans.
Why collecting unpaid student loans again
When the pandemic started in 2020, the government paused federal student loan payments to help people who were struggling. This pause, created through the CARES Act and later extended by both the Trump and Biden administrations, stopped: monthly payments, interest from building up, and all involuntary collection methods, such as taking tax refunds or garnishing wages.
The pause lasted almost five years and, at the end of 2023, most borrowers had to start paying again, but the government still did not restart the harsh collection methods. That ‘’grace period’’ has now ended and, from this month of January, the government is restarting the full collection system.
Who will be the most affected?
People who will suffer the most are the ones in default, which means that they haven’t paid their loans for more than nine months. Currently almost 7 million people are in default and it’s expected that this number will increase up to 10 million with the new rules of the One Big Beautiful Bill Act. These people will face harsher consequences, like losing part of their salary or their tax refund.
Since January 7, the Department of Education started notifying more than 1,000 borrowers at a time about wage garnishment — meaning up to 15% of their monthly income may be taken to pay the debt. For the first time, the government will also start taking federal tax refunds again, including important credits like the Child Tax Credit and Earned Income Tax Credit, which many families depend on.
How the new Trump legislation affects borrowers
The One Big Beautiful Bill Act, which is linked to new federal policies under Trump, introduces several important changes:
- Fewer payment plan options: The law reduces the number of available repayment plans, which limits flexibility for borrowers.
- New borrowing limits: The law sets strict lifetime caps on how much money students can borrow from the federal government. For example, graduate or professional students can borrow up to $100,000, medical and law students up to $200,000, and parent PLUS loans are capped at $65,000 per child, and these loans will not qualify for special repayment programs.
- Deferment charges: The bill removes deferment options based on unemployment or financial hardship, making it harder for people facing tough times to pause their payments.
- More chances to fix default: Borrowers will now be allowed to “rehabilitate” their defaulted loans twice, instead of only once.
- Pell Grant changes: The bill includes new rules for Pell Grant eligibility and introduces Workforce Pell Grants for people in career or technical education programs.
Tax refunds and Social Security
During the 2026 tax season, the government could take directly the money from the tax refunds. In some cases, it could take the entire refund, even credits helping low-income families. Borrowers in default could also experience retentions of part of their Social Security benefits.
Before doing this, the government must send a written-warning 30 days before. Borrowers can request a hearing to show they are facing extreme financial hardship, or they can enter a rehabilitation agreement to stop the garnishment from starting.
Let’s talk about numbers
To have a better picture of what’s the situation of student loans in the U.S., we are going to give you a few numbers about it:
- Total U.S. student loan debt is $1.777 trillion.
- 92.2% of that is federal student loan debt.
- The average borrower owes $38,375 in federal loans.
- Public university students borrow an average of $31,960 for a bachelor’s degree.
So…
As the system shifts back to full enforcement, borrowers will need to stay informed, read all notices carefully, and understand their options to avoid deeper financial trouble.