What is student loan garnishment and who does it affect?

Student loan garnishment is when an employer deducts part of a paycheck to repay defaulted federal student loans. It applies after notice and a chance to contest. For federal loans, it can proceed without a court order. It affects borrowers in default who do not enter approved repayment or cure the default.

How much of my paycheck can be taken for federal student loans?

For federal student loans, wage garnishment can take up to 15% of disposable pay. Disposable pay is what remains after required deductions like taxes. Borrowers receive a notice and have time to contest or set up a plan before deductions start through their employer’s payroll system.

When will student loan garnishment begin and how fast could it scale?

Initial notices start in January, with about 1,000 planned and more added monthly. The scale depends on how many borrowers cure defaults or enroll in qualified plans. Effects on consumer spending will build over time as more payroll deductions start and savings buffers shrink across affected households.

What should investors watch as garnishment ramps up?

Watch monthly retail sales, personal consumption expenditures, and credit card delinquencies. Listen to retailer and payments earnings calls for shifts in traffic, conversion, approval standards, and loss rate guidance. Rising 30 to 89 day delinquencies, slowing discretionary comps, and higher BNPL usage can signal growing pressure.

Global Market Insights

December 24: Student Loan Garnishment Starts in January, Spending Risk

ByHuzaifa Zahoor December 25, 2025December 25, 2025

Student loan garnishment begins in January, starting with about 1,000 notices and growing each month. We explain how this step for defaulted federal student loans could affect paychecks, consumer spending, and credit risks. The move may reduce take-home pay and shift budgets away from non-essentials. That can pressure retailers and card lenders into 2026. We outline what to watch, how wage garnishment works, and where investor risk and opportunity could emerge.