Student loan default in 2026: rehab now, while garnishment is paused

9.3 million borrowers are in default and wage garnishment has been paused since January. Rehab erases the default record. Treasury collects next.

The Editors · Money · 7 min read · Oct 11, 2026

A calculator and a pen sitting on top of a piece of paper

By the numbers

9.3Mfederal student loan borrowers in default, June 30, 2026

$234Bowed on those defaulted loans

15%of disposable pay wage garnishment can take once it restarts

$7.98B vs $94Mdefaulted loans cleared by rehab vs consolidation, FY2025

4.14%share of loans Treasury resolved in its own 2015 pilot, vs 5.46% for private collectors

If your federal student loan is in default, the next few months are the cheapest time you'll get to fix it. Wage garnishment and tax refund seizures have been paused since January 16, 2026, and the Education Department hasn't named a restart date (CRS, May 29, 2026). Since September 30, you can apply to get out of default online, at the new Defaulted Loans Support Center.

For most borrowers, rehabilitation is the better exit. It takes nine monthly payments, and when it's done the default record comes off your credit report. Consolidation gets you out in weeks, but the default stays on your report, and since July 1, 2026 a new consolidation loan can only be repaid under RAP or the tiered standard plan (NCLC).

The reason to start now: nine payments begun in November end in July 2027. Once collections restart, they run while you rehab, and the Treasury office taking over these loans is allowed to add its own costs to your balance.

How many borrowers are in default

More than 9.3 million borrowers were in default on June 30, 2026, about 400,000 more than three months earlier (FSA, September 22, 2026). That's about 14% of the federally managed portfolio. Another 3.5 million were 31 days or more behind. Together they owe about $234 billion (Forbes, October 5, 2026, citing Education Department data).

The pile is split in two. Treasury says more than 5 million borrowers have been in default for over six years, and another 5 million defaulted in less than one (Treasury, September 30, 2026). The second group is the one whose wages haven't been touched yet.

What the government can take once collections restart

Three tools come back when the pause ends (CRS, footnotes 14 and 15):

Wage garnishment: up to 15% of your disposable pay, with at least 30 days' notice.
Tax refund offset: up to 100% of a federal tax refund.
Social Security offset: the lesser of 15% of the monthly benefit or whatever the benefit exceeds $750.

None of this is running now. The Education Department paused garnishment and offsets on January 16, 2026 to roll out the repayment changes in the 2025 budget law, and the pause is still the last word as of October 2026. The first garnishment notices went to about 1,000 borrowers in early January, before the pause (Scripps News).

A restart date could land at any time. Tax season 2027 is the one to watch: a refund is the easiest thing for the government to take, and it takes all of it.

Rehabilitation vs consolidation: what each one costs you

Rehabilitation means nine full, on-time monthly payments within ten months, at an amount set from your income and family size. The payment can be as low as $5 (Student Loan Borrower Assistance, NCLC). When you finish, the default record is removed from your credit report. Late payments reported before the default stay. Garnishment, if it's running, should stop after your fifth payment.

The catch is that you get one rehab per loan. From July 1, 2027 the law allows two, with a $10 minimum payment (CRS; Student Loan Borrower Assistance).

Consolidation pays the defaulted loan off with a new Direct Consolidation Loan. It's faster, a matter of weeks. The record of default stays on your credit report for up to seven years (The College Investor). And a consolidation loan made on or after July 1, 2026 can only be repaid on RAP or the tiered standard plan, which runs 10 to 25 years depending on the balance (NCLC).

The data shows which exit borrowers use. In fiscal 2025, rehabilitation cleared $7.98 billion of defaulted loans and consolidation cleared $94 million (CRS, Table 1). Consolidation fell 96% from fiscal 2019 and rehab fell 19%. CRS says the data alone doesn't explain why consolidation dropped so much further.

$9.8B$7.98B$2.26B$0.09B

View as table

Defaulted federal student loans cleared, by exit route
label	Defaulted federal student loans cleared, by exit route
Rehabilitation, FY2019	$9.8B
Rehabilitation, FY2025	$7.98B
Consolidation, FY2019	$2.26B
Consolidation, FY2025	$0.09B

Source: CRS R48962, Table 1, May 29, 2026

When consolidation still wins: you already used your one rehab, you need out of default in weeks (to get new federal aid, say), or you can't keep nine payments on schedule. In those cases, consolidating now and enrolling in RAP is the faster exit.

Why Treasury taking over makes waiting more expensive

On March 19, 2026, the Education Department and Treasury signed an agreement moving defaulted loans to Treasury's Bureau of the Fiscal Service, which collects overdue debts for most other agencies (CRS). The handover is gradual and has no published timeline.

Two details in that agreement matter to you.

First, Fiscal Service may "assess as costs on student loan debtors" any reasonable amounts it charges the Education Department, unless the Department chooses to cover them. A loan that reaches Treasury before you rehab it can grow by whatever Treasury bills.

Second, Treasury has tried this before and done worse than the collectors it is replacing. In a 2015 pilot covering 16,242 defaulted loans, Fiscal Service resolved 4.14% of them against 5.46% for the Education Department's private collection agencies. Its own report called rehabilitation "difficult to complete" (CRS, citing Treasury's July 2016 report). Fiscal Service also cut its headcount by about 40% between September 2024 and February 2026, by CRS's count.

The new portal is Treasury's answer to that record. It moves rehab and consolidation applications online and replaces the mail and fax forms. Treasury reports a 69% increase in approved rehab applications under this administration (Treasury). That's the government's own count, with no baseline period given.

What to do this month

Find your loan holder. Log in at studentaid.gov or call the Default Resolution Group at 1-800-621-3115.
Check whether you've rehabbed this loan before. If you have, rehab is closed to you until July 1, 2027. Consolidation is your route.
Apply for rehab through the support center and send income documents so the payment is set from your income. Ask for the payment in writing.
Pay on time, nine times. Each one within 20 days of its due date. The ten-month window leaves room for one miss, and no more.
Pick a repayment plan before rehab ends, so you don't drop back into default on the first bill after it.

What could change this

The Education Department could restart collections before you finish, which shortens the cheap window but doesn't close rehab. Treasury could set its fees low or the Department could absorb them, which would make waiting cheaper than the agreement allows. And from July 2027 a second rehab exists, so a borrower who already used one gets another shot then.

None of that changes the order. Rehab first if you can make nine payments. Consolidate if you can't.