9.3 Million Student Loan Borrowers Are in Default: Garnishment Is Paused for Now, but 15% of Pay, Tax Refunds and Social Security Are at Stake — Rehab vs. Consolidation in 2026 and the New Online Fix (Oct. 18)

The U.S. Department of Education’s Lyndon Baines Johnson building in Washington. About 9.3 million federal student loan borrowers were in default as of June 30, 2026, owing roughly $234 billion. Photo: G. Edward Johnson / Wikimedia Commons, CC BY 4.0.

Last updated Oct. 18, 2026. Default figures come from Federal Student Aid data through June 30, 2026, as reported by Business Insider and CNBC. Collection rules come from Federal Student Aid and the Treasury’s Bureau of the Fiscal Service. Payment examples are Dollar Lane estimates using the published formulas; your servicer sets your actual amount. This is education, not legal or personalized financial advice.

If you have a federal student loan you stopped paying, this is the quiet window to fix it. As of June 30, 2026, about 9.3 million federal student loan borrowers were in default, owing roughly $234 billion, or about 14% of the federal portfolio. That is 400,000 more borrowers than three months earlier and up from about 6.2 million a decade ago. Another 1.5 million borrowers are in late-stage delinquency and could default within six months, according to Federal Student Aid data.

Right now, the government is not taking paychecks or tax refunds to collect. On Jan. 16, 2026, the Education Department paused wage garnishment and Treasury offsets while it rolled out the new repayment plans, and as of mid-October it still had not announced a restart date. But the pause is not forgiveness. Defaulted loans are still in default, interest keeps building, and the default is still on your credit report.

Two things changed this fall. On Sept. 30, the Treasury and Education departments launched an online Defaulted Loans Support Center, so you can now apply to get out of default without mailing or faxing paperwork. And the July 2026 student loan overhaul changed the math between the two main exits, rehabilitation and consolidation, in ways many borrowers don’t know about yet.

Below: what is at stake, how each path out works in 2026, what you might pay and a step-by-step plan. If you were on SAVE and are still choosing a new plan, start with our guide to leaving SAVE, RAP vs. IBR and the 1% autopay cut.

Student loan default by the numbers (October 2026)

Measure	Figure	Source
Federal borrowers in default (June 30, 2026)	About 9.3 million	Federal Student Aid data
Change from prior quarter	+400,000 borrowers	Federal Student Aid data
Debt in default	About $234 billion (about 14% of the portfolio)	Federal Student Aid data
Borrowers in late-stage delinquency	About 1.5 million	Federal Student Aid data
Borrowers in default 10 years earlier (June 2016)	About 6.2 million	Education Department data, via CNBC
Wage garnishment and Treasury offset	Paused since Jan. 16, 2026; no restart date announced	Education Department
New online portal	Defaulted Loans Support Center, launched Sept. 30, 2026	Treasury / Education

Why the jump? The end of the pandemic payment pause, the end of the SAVE plan and a weaker job market for recent graduates have pushed borrowers behind, CNBC reports. The strain shows up elsewhere, too: more than half a million personal bankruptcy cases were filed in 2025, almost 50% more than three years earlier, according to the Administrative Office of the U.S. Courts, as cited by CNBC.

Are you in default? How to check in five minutes

A federal student loan generally goes into default after you miss scheduled payments for 270 days, about nine months. Being late is not the same as being in default, and the difference matters: before day 270, you can still fix things with your regular servicer without a default ever landing on your record.

• Log in to StudentAid.gov. If a loan is in default, your dashboard shows a warning in a red box. Under “My Aid,” the loan details page shows each loan’s status.
• Look at who your servicer is. Defaulted loans held by the Education Department move to the Default Resolution Group (DRG). If DRG is listed as your servicer, the loan is in default. Older commercially held FFEL loans go to a guaranty agency instead.
• Check your mail and your credit report. DRG sends a letter after default. If you don’t act within 65 days of the loan being placed in default, DRG reports it to Equifax, Experian, Innovis and TransUnion, so a default can appear on your report twice: once from your old servicer and once from DRG.

Not sure what your credit report says? Pull your free reports and see how a default affects your score in our guide to how credit scores work and what moves them.

What default can cost you once collections restart

Federal student loans are unlike almost any other consumer debt. The government does not need to sue you or get a court order to collect, and there is no statute of limitations. Once involuntary collections resume, these are the main tools, with the limits set by federal rules:

Collection tool	What can be taken	Example
Administrative wage garnishment (AWG)	Up to 15% of your disposable pay (pay after legally required deductions such as taxes), ordered through your employer	$3,000 of disposable pay a month: up to $450 a month
Federal tax refund offset (TOP)	Up to 100% of your federal income tax refund	A $2,800 refund could be taken in full
Social Security offset (TOP)	The lesser of 15% of the monthly benefit or the amount above $750 (SSI is exempt)	$2,000 benefit: up to $300 a month
Federal salary offset	Up to 15% of disposable pay for current or former federal employees	Applies to federal workers and some retirees
Collection costs	Added to what you owe; payments go to fees first, then interest, then principal	Your balance can barely move even as money is taken

Default also locks you out of benefits you would otherwise have. While a loan is in default, you can’t get new federal student aid, and you lose access to deferment, forbearance and income-driven repayment plans until you resolve it. That matters for parents, too: if you are helping a child file the new form, see our FAFSA 2027–28 guide and the new Parent PLUS cap.

The Treasury Building in Washington. Under a 2026 partnership, Treasury now handles day-to-day collection of defaulted federal student loans; once offsets resume, it can take up to 100% of a federal tax refund and part of a Social Security check. Photo: G. Edward Johnson / Wikimedia Commons, CC BY 4.0.

Who now runs collections

Under the Treasury-Education partnership announced in March 2026, Treasury now handles day-to-day collection of defaulted federal student loans and administers the Default Resolution Group, while the Education Department still sets policy. Letters, websites and phone menus may change over the next year, so save every notice you receive.

The Social Security math for older borrowers

Many older borrowers carry Parent PLUS loans or their own decades-old balances. Treasury’s rules protect the first $750 of a monthly Social Security benefit and take at most 15% of the total:

Monthly Social Security benefit	15% of benefit	Amount above $750	Maximum offset
$850	$127.50	$100	$100
$1,200	$180	$450	$180
$2,000	$300	$1,250	$300
$2,800	$420	$2,050	$420

For a retiree getting $2,000 a month, that’s up to $3,600 a year, more than the extra money most retirees will get from the 2027 cost-of-living increase. (See our breakdown of the 3.6% COLA for 2027.) In August, Sens. Bernie Sanders, Elizabeth Warren and Ed Markey introduced a bill to stop Social Security garnishment for older borrowers and borrowers with disabilities, but it has not become law.

Why the pause is not protection

It is tempting to treat the collections pause as a reason to wait. Here is why that usually backfires:

• The clock keeps running on your credit. The Education Department says it continues to report defaults to the credit bureaus during the pause. A default can keep you from getting approved for an apartment, a car loan at a decent rate or a credit card.
• Interest keeps accruing. The balance grows every month you wait, and collection costs can be added on top.
• Restart notices have short fuses. Before wage garnishment starts, you get a written notice and 30 days to request a hearing. Before a Treasury offset, the notice gives you 65 days. If your mail goes to an old address, you may never see them.
• Garnishment is slow to stop. In past restarts, some borrowers kept losing pay for weeks after they had already fixed the default, The College Investor has reported.
• Tax season is coming. If offsets restart before you file in early 2027, a refund you have already planned for could go straight to your loan.
• A mortgage may be on hold. Delinquent federal debt shows up in CAIVRS, the government database that FHA, VA and USDA lenders check. You generally have to resolve a default before you can get one of those loans. See our guide to FHA loans for first-time buyers for the other requirements.

Rehabilitation takes nine to 10 months. Start now and you could be nearly done by the end of tax season; wait for a restart notice and money may be taken while you work through it.

The new Defaulted Loans Support Center: what it does

Getting out of default used to mean paper forms and often a fax machine. The new portal at StudentAid.gov/default-support moves that online. According to the Treasury announcement, you can:

• Compare your options to get out of default side by side;
• Apply online for rehabilitation or consolidation, upload documents, see an estimated rehabilitation payment and sign electronically;
• Track your application, make a payment on a defaulted loan and review discharge options.

The administration says approved rehabilitation applications are up 69% since the partnership started, and consolidations out of default are up 95% after a technical problem with consolidations was fixed. In early feedback, 89% of users said the application was easy to complete. If you’d rather talk to someone, the Default Resolution Group is at 1-800-621-3115. DRG does not charge for its help.

Path 1: Loan rehabilitation (best for most people who can wait 10 months)

Rehabilitation is a deal with the government: make nine voluntary, on-time monthly payments within 10 consecutive months (so you can miss one), and the loan comes out of default. For Direct and FFEL loans, each payment must arrive within 20 days of its due date. Perkins loans need nine payments in a row.

How the payment is calculated

Under the standard formula, your rehabilitation payment is 15% of your discretionary income, divided by 12. Discretionary income is your adjusted gross income (AGI) minus 150% of the federal poverty guideline for your family size. For 2026, the HHS poverty guideline is $15,960 for one person and $27,320 for a family of three in the 48 contiguous states and D.C., so 150% is $23,940 and $40,980.

Borrower	Math	Estimated rehab payment
Single, AGI $25,000	($25,000 − $23,940) × 15% ÷ 12	About $13 a month
Single, AGI $35,000	($35,000 − $23,940) × 15% ÷ 12	About $138 a month
Single, AGI $50,000	($50,000 − $23,940) × 15% ÷ 12	About $326 a month
Family of three, AGI $55,000	($55,000 − $40,980) × 15% ÷ 12	About $175 a month

Your servicer usually uses the AGI from your most recent tax return or transcript. If the amount is still more than you can afford, you can submit a Loan Rehabilitation Income and Expense form, and the servicer will calculate an alternative payment based on your actual expenses, such as rent and medical bills. Today, the minimum payment can be as low as $5 a month.

What changes in 2027

The 2025 budget law gives borrowers a second chance at rehabilitation. Under the Education Department’s final rules, starting July 1, 2027, a loan can be rehabilitated twice instead of once, and the minimum rehabilitation payment on Direct Loans rises from $5 to $10, according to Nolo’s updated guide. If you already rehabilitated a loan once and it defaulted again, consolidation is likely your only route before then.

What you get when you finish

• The default record comes off your credit report. After your ninth payment, the Education Department asks the credit bureaus to remove the record of default. Late payments reported before the default stay, but removing the default itself can help your score.
• Your original loans survive. This is the big 2026 advantage. Because you keep the same loans, borrowers whose loans were made before July 1, 2026, can still choose Income-Based Repayment (IBR) after rehabilitating, as well as the new Repayment Assistance Plan (RAP).
• You regain benefits. Deferment, forbearance, income-driven plans and eligibility for new federal aid all come back.
• Collections stop. Under normal rules, garnishment and offsets can continue until you have made at least five rehabilitation payments or the loan leaves default.

The trade-off is time: most of a year, and missing more than one payment can send you back to the start. When you finish, the loan moves to a regular servicer and you need to pick a repayment plan.

Path 2: Consolidation (faster, but read the 2026 fine print)

A Direct Consolidation Loan pays off your defaulted loans with a brand-new federal loan. It is faster than rehabilitation: no fees to apply, and it is usually done in a few months. You qualify in one of two ways: make three consecutive, voluntary, on-time monthly payments on the defaulted loan first, or agree to repay the new loan under an income-driven plan.

The new-loan catch

Because the consolidation loan is a new loan, the rules for loans made on or after July 1, 2026, apply to it. Your repayment options are only the Repayment Assistance Plan (RAP) or the Tiered Standard plan. IBR, PAYE and ICR are off the table, as Yahoo Finance explains. Two groups should slow down before they consolidate:

• Parent PLUS borrowers. A consolidation loan that repays a Parent PLUS loan is not eligible for RAP. Consolidated after July 1, 2026, it can only be repaid on the Tiered Standard plan, a fixed payment with no income-driven option and no income-driven forgiveness.
• Borrowers who were counting on IBR forgiveness. IBR forgives balances after 20 or 25 years. RAP forgives after 30 years (360 payments). Consolidation also resets the count toward income-driven forgiveness, although PSLF borrowers keep a weighted credit for qualifying payments on the Direct Loans they consolidate.

How RAP works after consolidation

RAP takes 1% to 10% of your total AGI, not just the part above a poverty-line allowance. It starts at 1% for AGI over $10,000 and up to $20,000 and rises one point for each additional $10,000, reaching 10% above $100,000, according to the Congressional Research Service. You subtract $50 a month for each dependent, and the minimum is $10. RAP also waives unpaid interest on on-time payments and adds a small matching principal payment if yours reduces principal by less than $50, so your balance can’t grow from a low payment.

Estimated monthly payments for a single borrower: a standard rehabilitation payment vs. RAP after consolidating vs. IBR (10% version), which rehabilitated pre-July 2026 loans can still use. Formulas: Federal Student Aid, CRS; 2026 HHS poverty guideline. Chart: Dollar Lane (original).

As the chart shows, RAP is often cheaper than a standard rehabilitation payment for borrowers above roughly $30,000 in income, and those payments count toward forgiveness instead of just ending a default. But rehabilitation is temporary, often negotiable, and it preserves IBR for older loans. At very low incomes, rehabilitation can cost almost nothing.

What consolidation costs you

• The default stays on your credit history. Your old loans will show as defaulted and then paid by the new loan. Federal Student Aid says the record of the default, and the late payments before it, may remain for up to 10 years.
• Collection costs and interest get added. Unpaid interest and collection costs are folded into the new balance, so you start with more debt.
• You lose some loan perks. Benefits tied to the original loans, such as Perkins cancellation, may disappear. Active-duty servicemembers can also lose the 6% interest cap under the Servicemembers Civil Relief Act on loans they consolidate.

One perk is still available: if you consolidate through the portal, pick a plan and enroll in autopay by Dec. 31, 2026, you get the temporary 1% interest-rate cut through June 30, 2028, instead of the usual 0.25 point.

Rehabilitation vs. consolidation at a glance

Feature	Rehabilitation	Consolidation
How long it takes	9 payments in 10 months	Usually a few months
What you pay while getting out	15% of income above 150% of poverty line, or a lower amount based on expenses ($5 minimum today; $10 for Direct Loans from July 1, 2027)	Three voluntary payments first, or agree to an income-driven plan (RAP)
Default on your credit report	Record of default removed (earlier late payments stay)	Default stays, may remain up to 10 years
Repayment plans afterward	Keeps your original loans; pre-July 2026 loans can still use IBR or RAP	New loan: RAP or Tiered Standard only; Parent PLUS: Tiered Standard only
Collection costs	Avoids collection fees, per Federal Student Aid	Collection costs and interest added to the new balance
How many times	Once per loan today; twice from July 1, 2027	Generally once for a defaulted loan
Apply	Online at StudentAid.gov/default-support or DRG	Online at StudentAid.gov/default-support

Which path fits you?

• You can make small payments for 10 months and want your credit back: rehabilitation. It is usually the better long-term deal, especially if your loans were made before July 2026 and you may want IBR.
• Collections have restarted on you, or you need out fast: consolidation, especially if a mortgage application or a return to school can’t wait 10 months.
• You already used your one rehabilitation: consolidation now, or wait for the second-rehabilitation option on July 1, 2027.
• You have Parent PLUS loans: compare carefully. Consolidating locks you into the Tiered Standard plan, while rehabilitating keeps your original loan and whatever options it still has. Talk to DRG or a nonprofit student loan counselor before you choose.
• You work in public service: ask about PSLF before you choose. RAP payments count toward PSLF, and consolidation keeps a weighted credit for Direct Loan payments.

Because each loan is handled separately, some borrowers rehabilitate one loan and consolidate another. A counselor can help you sort out which goes where.

Not in default yet? How to stop it before day 270

If you are among the 1.5 million borrowers who are seriously behind but not yet in default, you have more and better options than anyone who has already defaulted. Act before the loan crosses 270 days:

1. Call your current servicer, not DRG. Your servicer can lower your payment, move you to an income-driven plan or put you in a deferment or forbearance.
2. Apply for RAP or IBR if your income is low. RAP can be as little as $10 a month, and its interest waiver keeps the balance from growing.
3. Turn on autopay by Dec. 31 to lock in the temporary 1% rate cut through mid-2028.

Avoiding default keeps it off your credit report, spares you collection costs and keeps every option open.

Other ways out: discharge and bankruptcy

Some borrowers don’t have to repay at all. You can apply for a discharge even while in default, and the Defaulted Loans Support Center lists the options:

• Total and permanent disability (TPD) discharge for borrowers who can’t work because of a qualifying disability.
• Closed school discharge if your school closed while you were enrolled or soon after.
• Borrower defense to repayment if your school misled you.
• Bankruptcy. Student loans can be discharged in bankruptcy only if you prove “undue hardship” in a separate court case, which is hard. Former bankruptcy judge Sarah Sharer Curley told CNBC this month that it has become harder to reach settlements with the Education Department. Talk to a bankruptcy attorney before assuming it’s off the table.

Watch for default “help” scams

Defaults draw scammers. Federal Student Aid says DRG does not charge for its services. The only payments it asks for are your voluntary rehabilitation or repayment-agreement payments. Be suspicious of any company that:

• Charges “enrollment,” “subscription” or “maintenance” fees to get you out of default;
• Asks for your StudentAid.gov username and password, or your FSA ID;
• Promises instant forgiveness, or says the government will “wipe out” your default if you pay them first;

Everything in this guide is free at StudentAid.gov. If you gave personal information to a company you don’t trust, freeze your credit. Our credit freeze guide explains how to do it with all three major bureaus.

Make room for the payment in your budget

A payment only works if you can keep making it:

• Use the expense form if the 15% payment doesn’t fit. A lower payment you can make nine times beats failing halfway.
• Rank your other debts. If you’re also carrying credit card balances, our guide to debt avalanche vs. snowball shows how to order them so the student loan payment stays protected.
• Build a small buffer. One surprise bill can derail an agreement; even $500 set aside helps. See how much emergency savings to keep and where to park it.

Your 9-step plan to get out of default

1. Log in to StudentAid.gov and confirm which loans are in default and who holds them (DRG or a guaranty agency).
2. Update your mailing address, email and phone so you get every notice.
3. Gather your income proof: your most recent tax return or an IRS tax transcript.
4. Open the Defaulted Loans Support Center at StudentAid.gov/default-support and compare rehabilitation and consolidation estimates.
5. Check your loan types. If any are Parent PLUS, or you were counting on IBR, lean toward rehabilitation or get counseling before consolidating.
6. Apply online and sign your agreement electronically. If the payment is too high, submit the income and expense form.
7. Make every payment on time, ideally by autopay, and keep proof of each one.
8. Once you’re out, choose a repayment plan (RAP or IBR if eligible) and enroll in autopay by Dec. 31 to get the 1% rate cut.
9. Check your credit reports two to three months after you finish to make sure the default is removed (rehabilitation) or shown as paid (consolidation).

FAQ

Is student loan wage garnishment happening right now?

No. The Education Department paused wage garnishment and Treasury offsets on Jan. 16, 2026, and as of mid-October had not announced a restart date. Your loans are still in default, and collections can resume after written notice.

How many student loan borrowers are in default?

About 9.3 million as of June 30, 2026, owing about $234 billion, according to Federal Student Aid data. That is up 400,000 in one quarter. Another 1.5 million are in late-stage delinquency.

Can the government take my Social Security for student loans?

Yes, once offsets resume: the lesser of 15% of your monthly benefit or the amount above $750. SSI is exempt. A $2,000 benefit could lose up to $300 a month.

Is rehabilitation or consolidation better?

Rehabilitation usually is, if you can make nine payments over 10 months: it removes the default record and keeps your original loans, including IBR access for pre-July 2026 loans. Consolidation is faster, but the new loan is limited to RAP or Tiered Standard, and the default stays on your credit history.

How much is a rehabilitation payment?

Generally 15% of your income above 150% of the poverty line, divided by 12. For a single borrower with $35,000 of AGI in 2026, that’s about $138 a month. You can ask for a lower payment based on your expenses; the minimum is $5 today.

Bottom line

With 9.3 million borrowers in default and collections paused only “temporarily,” the next few months are the cheapest time to fix a defaulted student loan. Nobody is taking your paycheck, tax refund or Social Security yet, and the new Defaulted Loans Support Center lets you apply online in one sitting. For most borrowers, rehabilitation is the better deal: nine affordable payments, the default removed from your credit report and your original loans, including IBR access, kept. Choose consolidation if you need out fast, but know that it now means RAP or Tiered Standard only, and Tiered Standard only for Parent PLUS. Whichever you pick, start before a restart notice arrives, put the payment on autopay and lock in the 1% rate cut by Dec. 31.

Student loan rules are changing quickly in 2026, and collection policies can be updated with little notice. Confirm current details at StudentAid.gov or with the Default Resolution Group before you act, and consider a nonprofit student loan counselor or an attorney for complex cases. Dollar Lane publishes general education for U.S. readers and is not a lender, servicer, debt-relief company or law firm.