As borrower options narrow, here's how employers can help

When the Department of Education (DOE) announced it would temporarily delay administrative wage garnishment (AWG) in January, many workers and employers sighed with relief. The delay gives organizations and borrowers more time to plan before it affects payroll. But AWG is still coming.

Once AWG resumes, the government will be able to seize up to 15% of a borrower's disposable pay without a court order by directing employers to withhold wages directly from paychecks. This enforcement comes against the backdrop of a broader reset of the student loan system as borrower protections and repayment rules are expected to change. 

Alongside the eventual restart of AWG, policy changes have significant implications for borrowers and employers alike, pulling organizations deeper into their employees' financial lives and compromising workforce stability. As the country awaits the restart, employers with the help of their adviser can take steps now to prepare employees and their broader organization.

Read more: With loan repayment looming, help employees with education support

The restart of AWG comes at a moment when borrowers face diminishing options to pay their student loan debt. Due to recent policy changes, several pathways available to borrowers will narrow in 2026, complicating an already complex landscape. 

Here are some key changes: 

• Income-Driven Repayment (IDR) consolidation. With the "One Big Beautiful Bill" Act (OBBBA), the Trump administration will phase out several IDR options, including the SAVE plan, consolidating them into two programs: Repayment Assistance Program and Income-Based Repayment. This consolidation forces nearly seven million SAVE enrollees to transition, increasing the risk of delinquency. 
• Tighter borrowing limits. Effective July 2026, the federal government will impose new annual borrowing caps: $20,500 for graduate students, $50,000 for professional students and $20,000 for parent borrowers. This change limits employees' ability to return to school to reskill or upskill.
• Grad PLUS elimination. The Grad PLUS loan program, which offered flexible financing up to the full cost of attendance, has been eliminated for new borrowers. This change severely limits financing options for graduate education, particularly for working professionals.

Collectively, these shifts narrow the path forward for borrowers on the brink of delinquency and default. Once AWG resumes and paychecks are affected, borrowers will only face greater financial stress.
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Since the DOE last enforced AWG five years ago, the student loan debt landscape has dramatically changed. Held back by frequent pauses, repayment restructuring and lengthy processing backlogs, only one-third of 40 million borrowers are actually making payments on their loans.

As a result, 5.3 million borrowers remain in default on their student loans and haven't made a payment in 270 or more days. An additional 6.6 million borrowers are delinquent and haven't made a payment in 30 to 270 days. And one in four borrowers are at risk of the "default cliff," meaning they will likely shift from delinquent to default in 2026. 

Read more: This company's retirement strategy starts with student loan repayment

Debt repayment and AWG come at a particularly complicated moment for many borrowers. Wages are stagnating, hiring is slowing and new college graduates struggle to find jobs. In effect, those most likely to be impacted by the recent policy changes and garnishment will be the employees that employers struggle to retain most: frontline and entry-level workers.

Critical steps to take

With preventive measures, employers can help their employees with delinquent or defaulted loans avoid the worst consequences. Before AWG resumes, employers must take advantage of the delay to anticipate and answer employee questions while also understanding AWG to remain compliant. Here are three key strategies:

1. Prepare for disruptions. Historically, wage garnishment is linked to higher turnover, increased absenteeism and lower morale. This risk is highest in frontline and entry-level roles, where workers can move between similar jobs to avoid garnishment in the short term, even if it means taking lower pay. Unsurprisingly, financial stress affects employees' mental health, contributing to broader disengagement. Employers should prepare for the potential downstream impact of AWG and consider implementing financial education and engagement programs.
2. Align HR and payroll policies and strategies. Wage garnishment orders will hit payroll departments first, and employers must withhold a portion of the worker's pay from the next paycheck. Once enforcement takes effect, the change requires swift, careful action by HR and payroll teams to ensure compliance. Employers should use the delay to understand compliance mechanics and properly coach HR and payroll teams on how to handle upcoming sensitive employee conversations.
3. Invest in student loan repayment assistance benefits. Employers can help their workforce avoid AWG altogether by offering student loan repayment assistance. For employees facing hefty student loan debt, student loan repayment assistance helps them begin addressing their debt before they reach delinquency or default, or pulls them out of default before they face garnishment. By supporting employees and reducing financial strain, employers can protect the whole organization from drops in performance, potential turnover and disengagement.

Ultimately, those employers willing to act now to alleviate financial stress in their workforce will reap the benefits as AWG resumes. Preparation, communication and targeted support will matter more than ever as the student loan system continues to reset.