The Employer’s Guide to Managing Student Loan Wage Garnishments
Ellin McHarg, Lead Content Marketing Program Manager
What you’ll need to know when the student loan crisis hits your payroll in the form of wage garnishments.
Key Points
- The U.S. Department of Education has resumed wage garnishments for defaulted student loans, affecting millions of workers
- Employers must process garnishment orders immediately, withholding up to 15% of disposable income, with no grace period
- Accurate calculations, legal prioritization of multiple garnishments, and employee confidentiality are critical to avoiding noncompliance
- Communications need to focus on empathy, maintaining privacy, and connecting employees with financial and legal resources
- Upgrading payroll systems can reduce errors, ensure compliance, and ease administrative burden throughout the garnishment process
Organizations across the U.S. are bracing for a surge of wage garnishments due to resumed collection efforts for more than 5 million defaulted federal student loan borrowers by the U.S. Department of Education (DoE).
The DoE’s Office of Federal Student Aid paused collections for approximately five years as part of COVID-era policies intended to offer relief to borrowers but resumed collections on May 5, 2025.
According to the DoE press release, the U.S. Treasury Department will be notifying all defaulted borrowers about the collection activity of their wages later this summer.
Employers of student loan borrowers in default may need to withhold a portion of their pay and send it to the loan holder to repay the defaulted loan. The loan holder can order employers to withhold up to 15% of a defaulter’s disposable pay to collect their defaulted debt.
This withholding, or garnishment, continues until the defaulted loan is paid in full or removed from default.
So what does all this mean for you as an employer? The immediate impact on your organization will be increased administrative burden, new compliance requirements, and employee communications challenges. However, as we explore in this blog, there are steps you can take to help manage this complex issue.
Understanding the Student Loan Deferral Rollback
Although regular federal student loan payments were restarted in October 2023, this latest change from the DoE specifically targets borrowers with defaulted loans, many of whom assumed their debts were forgiven during the extended forgiveness period. Now millions of unprepared borrowers are facing the full force of federal collection tools, including wage garnishment and tax refund seizures, creating widespread financial shock.
If you have to garnish wages for defaulting employees, you’ll need to assess the impact on your workforce. This may affect 10-15% of employees, particularly entry- to mid- level workers, recent graduates, and career changers, many of whom haven't paid student loans since 2020. The new loan collection directive could lead to financial stress, productivity issues, retention challenges, and more requests for advances, overtime, and financial counseling.
Compliance is Not Negotiable: Student Loan Wage Garnishment
Federal student loan wage garnishments create unique legal obligations that greatly differ from other garnishment types. As an employer, it’s vital that you understand the following requirements to protect your organization from liability while ensuring compliance with federal mandates.
Linda Misegadis, UKG Senior Government Strategist, advises employers to treat wage garnishment orders with the same urgency as tax levies. “These are legally binding directives and timely and accurate compliance is critical,” she says. “I recommend designating a point person in payroll or HR to manage these orders and ensure they are processed promptly to avoid any penalties.”
Federal Compliance Requirements
- Processing is non-negotiable. When you receive a valid federal student loan garnishment order, you have no legal authority to refuse, regardless of company size or industry.
- The fact that no court order is required distinguishes federal student loans from traditional garnishments. The DoE operates under administrative authority, meaning orders arrive directly from federal agencies with full legal force.
- Immediate implementation is mandatory upon receipt of valid documentation. Federal regulations provide no grace periods. Garnishments must begin with the next payroll cycle, and you cannot delay or negotiate terms.
- Anti-retaliation protections forbid negative employment actions against garnished employees. Termination, discipline, or demotion solely due to garnishment status violates federal law.
- Documentation and remittance obligations require comprehensive record-keeping and timely payments to designated agencies. Late payments result in penalties and additional liability.
Calculation and Processing Requirements
- The 15% maximum rule of a student loan defaulter’s pay applies to disposable earnings, not gross wages. Disposable earnings equal gross wages minus legally required deductions: taxes, Social Security, Medicare, and mandatory state disability insurance. Voluntary deductions such as health insurance don’t reduce disposable earnings.
- Minimum protection ensures employees retain at least $217.50 per week after garnishment. When disposable earnings fall below this threshold, garnishment amounts must be reduced regardless of the calculated 15%.
- Ongoing calculations must reflect actual earnings for each pay period. Fixed amounts based on estimates are not allowed. Variable income, overtime, and bonuses require corresponding garnishment adjustments.
- Multiple garnishment hierarchy applies when competing orders exist. Federal student loans follow specific priority rules when combined with child support, tax levies, or court judgments. You need to determine the legal priority order (child support usually comes first), calculate the remaining available income after the first garnishment, then apply the second garnishment to whatever’s left — all while ensuring the employee retains the federally mandated minimum income.
- Variable income challenges require special procedures for seasonal workers, commission-based employees, and those with irregular earnings while maintaining federal compliance.
Risk and Liability Exposure
As you can see, there’s a lot at risk for your organization by not complying with federal student loan wage garnishment requirements. Government agencies have audit authority to review your procedures and documentation, and if you’re found to be noncompliant, you risk legal action, fines, and direct liability for unpaid amounts.
It’s essential for you to have systems in place to accurately handle the wage garnishment process. Calculation errors can create liability regardless of intent: over-garnishment requires refunds plus penalties, and under-garnishment results in employer liability with interest. In addition, state law conflicts can complicate compliance when federal and state requirements differ, and record-keeping failures compound all these issues by making it difficult to demonstrate compliance, resolve disputes, or respond to audits effectively.
It’s a lot, but there are ways you can better manage this process to ensure you’re compliant while maintaining fairness for your employees — and at the top of the list is implementing modern payroll technology. Payroll systems such as those from UKG® are built to automate the calculation and processing of wage garnishments, including those related to student loans. This ensures that deductions are fast, accurate, and compliant with all legal requirements.
Managing Wage Garnishments: Operational Impact and Compliance Strategy
The Management Process
When wage garnishment orders arrive, they trigger challenges for your business beyond simple payroll deductions which could be especially challenging if your current payroll system isn’t designed to handle complex garnishment scenarios.
Organizations typically face tight 10-14 day response windows, which means your payroll system needs to be up to speed on new garnishment categories. Multi-state companies especially will need to figure out state and federal jurisdictional requirements while coordinating new garnishments with existing obligations such as child support, tax levies, and creditor garnishments. This complexity often reveals that legacy payroll systems lack the advanced garnishment features needed to manage these requirements.
UKG’s Linda Misegadis recommends that employers start by centralizing documentation and automating the process where possible. “Even small teams can benefit from templates, checklists, and flags in the payroll system,” she says.
UKG solutions offer powerful integrated reporting tools that allow you to track and analyze garnishment data quickly and accurately. These reports can help you monitor compliance, assess the impact of garnishments on payroll, and make informed decisions regarding workforce management.
Human Resources and Workplace Impact
Managing the human aspect of wage garnishments poses equally difficult challenges for HR or payroll teams in the form of managing increased administrative workloads and sensitive employee conversations about financial hardship. Your staff will need in-depth training on legal requirements while maintaining strict confidentiality about an employee’s personal financial struggles.
In addition, garnishments can create stigma and affect team morale. Other employees might find out about a colleague’s financial difficulties, causing embarrassment and stress for the affected employee that could impact their work performance and relationships with coworkers.
Wage Garnishment Compliance Strategy Checklist
Below are the actions you’ll need to take both near and long term to ensure a smooth process when wage garnishment orders arrive.
Immediate Action
- Policy development: Establish comprehensive garnishment policies covering federal and state requirements, employee rights, and calculation procedures.
- System assessment: Evaluate your payroll systems for garnishment automation capabilities and identify necessary upgrades for multi-state compliance.
- Staff training: Train HR, payroll, and management teams on legal requirements including the Consumer Credit Protection Act and state-specific variations.
- Legal resources: Partner with employment law attorneys specializing in wage garnishment for complex case resolution and liability protection.
- Documentation protocols: Create systematic record- keeping procedures with digital storage for garnishment orders, calculations, and employee communications.
- Response timelines: Implement 24-48 hour processing protocols to meet legal deadlines and avoid penalties.
- Verification procedures: Develop authentication processes to verify garnishment order legitimacy and prevent fraud.
Ongoing Management
- Regular audits: Conduct monthly compliance reviews focusing on calculation accuracy, timing, and documentation completeness.
- Error correction systems: Establish rapid response procedures for identifying and correcting calculation mistakes to minimize legal exposure.
- Quarterly reviews: Assess garnishment portfolios regularly to identify trends and prevent systemic issues before they develop.
- Professional development: Maintain current knowledge through ongoing education on changing regulations and industry best practices.
“Noncompliance is quite serious and can result in fines and legal action. The federal government may hold employers liable for any missed payments and employees could suffer financial harm. This can lead to issues in employee engagement.”
Communicating Wage Garnishments to Your Employees
Wage garnishments aren’t easy for the impacted employees or the staff who needs to support them. Here are some effective ways to communicate the process so everyone stays on track professionally and compassionately from day one.
Initial Notification Strategies
When discussing sensitive financial matters like wage garnishments, it’s important to do so in a respectful and private environment. Hold these conversations in a secure setting to protect employee dignity and foster trust.
Be transparent about the garnishment process. Clearly explain how deductions are calculated, how long they’ll last, and how they’ll appear on pay stubs. This helps reduce confusion and anxiety.
Also, be sure to take the time to educate employees about their legal rights, including their ability to request a hearing or file an appeal. Empowering them with this knowledge can make a difficult situation feel more manageable.
You can also offer support by connecting them with their loan servicer and recommending financial counseling resources. Most importantly, approach every conversation with empathy and without judgment — your tone can make a big difference in helping employees cope.
Ongoing Support
Protecting employee confidentiality in this process is key. Garnishment status should never influence workplace relationships or career advancement. Ensure that personal financial matters remain separate from performance evaluations and day-to-day responsibilities.
You can support affected employees by offering flexibility to attend court hearings or contact loan servicers during work hours. Leverage your employee assistance program to connect them with financial counseling and legal resources.
By maintaining clear boundaries and offering compassionate support, you can create a workplace where employees feel respected and empowered, even in challenging times.
In Summary
With student loan wage garnishments resuming, employers face urgent compliance responsibilities and increased administrative demands. Acting quickly, upgrading payroll systems, and training staff are essential steps for avoiding penalties and supporting affected employees. By combining legal compliance with empathy and clear communication, your organization can navigate this challenge while maintaining trust and productivity in your workplace.
If your organization is impacted by the latest federal wage garnishment mandates, make sure you have the right tools to stay in compliance and minimize the impact on your staff.
UKG solutions are designed to keep up with the latest federal and state regulations regarding wage garnishments to ensure that you’re adhering to legal requirements for student loan repayments, minimizing the risk of noncompliance penalties.
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