Last Updated on September 24, 2025 by MyHRConcierge

With the return of student loan repayment obligations and an increase in loan defaults, employers are once again receiving wage garnishment orders- particularly for federal student loans. Wage garnishment orders began again on May 5, 2025, after a five year pause due to the COVID-19 pandemic. It is critical for human resources (HR) professionals, employers and payroll administrators to understand how these garnishments work and how to process them in compliance with federal and state law.

What is Student Loan Wage Garnishment?

Wage garnishment is a legal mechanism through which a portion of an employee’s earnings is withheld by their employer and sent to the loan holder to repay the defaulted loan. A loan holder can order an employer to garnish up to 15% of an employee’s disposable pay. This withholding continues until your defaulted loan is paid in full or removed from default.

In the case of federal student loans, garnishment can occur through an administrative process, without the need for a court order, once the loan enters default status. Most federal student loans will generally enter default status after 270 days (or nine months) of non-payment. However, Perkins Loans can default immediately upon the first missed payment.

In the case of private student loans, private lenders require a court order to begin having an employer garnish wages. Private lenders must first sue and win a judgement in court before they can begin to garnish wages. Typically, with private student loans, the amount an employer can be requested to garnish is up to 25% of an employee’s disposable pay.

Employer Obligations Under Federal Law

When the U.S. Department of Education (ED) or an authorized collection agency issues an Administrative Wage Garnishment (AWG) order, employers are legally required to comply. Employers typically have 30 days from the date they are served the wage garnishment order to file a response, and then must begin withholding wages on the next pay period after that 30-day period ends. The amount withheld cannot exceed 15% of the employee’s disposable income, which refers to earnings remaining after legally required deductions such as federal and state taxes, Social Security and Medicare.

Withheld funds must be remitted to the address or agency listed in the garnishment notice, following the timeline outlined in the order. While the employee is supposed to receive advance notice from the issuing agency, employers are encouraged to also provide a copy of the order directly to the employee and advise them to explore their repayment options.

Consequences of Noncompliance

Employers who fail to comply with wage garnishment orders- or Title III of the Consumer Credit Protection Act (CCPA)- may face serious consequences. Additionally, the federal government may take legal action against the employer for continued noncompliance. Inaccurate withholding or failure to remit payments in a timely manner can expose the company to legal and financial risk.

In most states, if an employer does not comply with wage garnishment orders, they can be liable for the full amount of debt owed by an employee. Fines can range widely state-by-state, and cost the employer anywhere between $1,000- $10,000 per violation. Employers can also be held in contempt of court, resulting in further fines, or even imprisonment.

Best Practices for Employers, HR and Payroll Teams

Upon receiving a garnishment order, employers should first verify its legitimacy by confirming that it originates from the U.S. Department of Education or a designated collection agency and that it includes identifying information for the employee.

Next, calculate the garnishment correctly by determining the employee’s disposable income and withholding no more than 15%. This calculation should exclude voluntary deductions such as retirement contributions, insurance premiums or wage assignments unrelated to mandatory taxes.

Coordinate with your payroll department or provider to ensure garnishments are accurately integrated into the payroll process. Tracking the total amount garnished and documenting all transactions is essential for compliance and audit readiness.

Employers should also handle wage garnishment matters discreetly. These are sensitive financial issues, and employees may already be under stress. Encourage them to explore options such as loan rehabilitation, consolidation or enrolling in an income-driven repayment plan to avoid continued garnishments.

Ensuring Confidence in Wage Garnishment and HR Compliance

Student loan wage garnishments are not merely administrative tasks, but are federally mandated processes with legal implications. Employers must act promptly, accurately and in accordance with applicable laws to avoid penalties and ensure proper handling of sensitive employee matters.

Supporting employees who are facing wage garnishments with discretion and information can also improve workplace morale and reduce the likelihood of financial distress-related performance issues. A well-informed employer, HR and payroll teams can make a significant difference in both compliance and employee relations.

MyHRConcierge helps employers stay compliant with complex compliance requirements and other HR obligations by providing expert guidance, outsourced HR support and up-to-date regulatory insight. Whether you’re navigating student loan garnishments, multi-state employment laws or broader compliance concerns, our team is here to ensure your business stays protected and your HR processes remain seamless. For more information, contact MyHRConcierge at 1-855-538-6947 ext.108, email ccooley@myhrconcierge.com, or schedule a convenient consultation below: