The U.S. Department of Education (DOE) recently announced a delay in resuming wage garnishment for borrowers with defaulted federal student loans. This offers temporary breathing room if you are a freelancer with such a loan.

The following summarizes this new development and how freelancers can use this delay student loan garnishment to get ahead of potential financial strain and avoid the negative implications of  garnishment. As you may be aware, when garnishment hits your radar it has strong potential to disrupt cash flow, jeopardize your tax planning and create other financial challenges.

What’s Behind the Delay

The Department of Education has been working to transition borrowers into the new repayment landscape following the end of the pandemic-era payment pause. This includes:

• Implementing the new SAVE income-driven repayment plan
• Updating service systems
• Addressing widespread servicing errors and borrower confusion, and
• Ensuring borrowers receive required notices before garnishment resumes.

As a result, the DOE has postponed the restart of wage garnishment and other involuntary collection actions for borrowers in default.

What the DOE Wage Garnishment Delay Does Not Do

It’s important to recognize that this delay does not erase your loan default. It also does not stop interest from accruing, and it does not guarantee long-term protection from garnishment. Think of it as a grace period, not a solution.

It is important to note that the US Department of Education (DOE) Garnishment is done through an “Administrative Wage Garnishment (AWG)” action – where the DOE can garnish up to 15% of disposable pay for defaulted federal student loans without a court order. The delay in implementing involuntary collections, also includes the AWG action.

Here are some key ways to take advantage of the delay:

Explore the IRS Fresh Start Program 

The Department of Education’s Fresh Start initiative allows defaulted borrowers to restore their loans to good standing without making a lump-sum payment. Benefits include:

• Removal of default from your credit report
• Stops collections
• Allows access to flexible repayment options like income-driven repayment (IDR) pans
• Restoration of eligibility for federal aid and repayment plans
• Protection from future garnishment once you enroll in a repayment plan

The Fresh Start Program continues to be one of the most important tools available for taxpayers who have fallen behind on their tax obligations. Originally launched in 2011 and expanded several times since, the program is designed to make it easier for individuals and small businesses to resolve tax debt, avoid liens, and regain compliance.

Eligible for the Fresh Start Program are the following defaulted loans: 

• Defaulted borrowers with William D Ford Federal Direct Loan Program loans, 
• Federal Family Education Loan (FFEL) Program loans, or 
• Defaulted HEAL loans.

The program is not a single application or form—it is a suite of relief options that the IRS has made more accessible. These include:

1. Extended Installment Agreements

• Allows taxpayers to pay their tax debt over time—often up to 72 months.
• Requires fewer financial disclosures for debts under certain thresholds.

2. Offer in Compromise (OIC)

• Allows qualifying taxpayers to settle their tax debt for less than the full amount owed.
• Eligibility is based on financial hardship and IRS ability-to-pay formulas.

3. Penalty Relief / Penalty Abatement

• This tool may reduce or eliminate penalties for taxpayers who have reasonable cause or who qualify for first-time abatement.
• Particularly helpful for those who fell behind due to temporary financial hardship.

4. Higher Tax Lien Threshold

• The IRS generally will not file a tax lien unless you owe more than $10,000, up from the previous $5,000 threshold.

Eligibility for the Fresh Start Program varies by relief option, but typical requirements include:

• Owing less than $50,000 in tax debt (exceptions may apply).
• Having all required tax returns filed.
• Not being active in bankruptcy.
• Having the ability to make monthly payments or demonstrate financial hardship.
• Willingness to enter into a payment plan or submit an OIC.

Taxpayers with balances above $50,000 may still qualify by providing additional financial documentation or making a down payment.

For taxpayers who have fallen behind, whether due to unexpected expenses, business challenges, or missed filings, the Fresh Start Program can provide a structured, realistic path to resolving tax debt. 

5. Enroll in an Income-Driven Repayment Plan 

Once you exit student loan default, Income-Drive Repayment plans—especially the new SAVE plan—can reduce your monthly payment based on your income. For freelancers with fluctuating earnings, this can provide stability and predictability.

6. Review Your Tax Situation

Wage garnishment can complicate quarterly estimated taxes and cash-flow planning. Use this delay to:

• Reassess your quarterly tax strategy
• Adjust your estimated payments
• Evaluate whether you need to set aside more (or less) for taxes

7. Build a Cash Cushion

If you anticipate future garnishment, building even a small reserve can help soften the impact. Freelancers often operate with thin margins, so even a modest buffer can make a meaningful difference.

8. Communicate With Your Loan Servicer

Servicers are required to notify borrowers before garnishment resumes. Make sure your contact information is up to date and that you’re opening every email or letter you receive.

What Will Happen When DOW Wage Garnishment Eventually Resumes?

When DOE restarts involuntary collections, they can garnish:

• Up to 15% of disposable pay for federal loans
• Federal tax refunds
• Certain federal benefits

For freelancers who pay themselves through payroll (e.g., S-corps), wage garnishment can directly reduce take-home pay. For sole proprietors, the impact may show up through Treasury offsets rather than paycheck deductions.

Starting from July 1, 2026 new annual Borrowing limits will be set:

Professional Students: Up to $50,000 per year

Graduate Students: Up to $20,500 per year

Parent Borrowers: Up to $20,000 per year

Repayment Structure: Loans will follow a standard 10-25 year term, depending on the debt size.

Take Advantage of the Temporary DOE Wage Garnishment Pause

The Department of Education’s delay in wage garnishment is a temporary reprieve, not a permanent fix. If this delay impacts you, use this time to get ahead of potential financial disruption by exploring the Fresh Start program, enrolling in an income-driven repayment plan, and taking some of the relevant measures above to strengthen your financial foundation.

As always, proactive planning is your best defense. If you’re unsure how these changes affect your tax situation or business structure, consulting with a tax professional who understands the freelance landscape can help you make informed decisions.