This year, for the first time in roughly five years, borrowers who have defaulted on their federal student loan debt will face collection activity, including the garnishment of their wages and retirement benefits.

In a new U.S. Department of Education memo obtained by CNBC, a top official lays out for the first time details of when garnishments may resume — in some cases, as early as this summer.

The memo, dated days before the Trump administration takes over, details steps the Biden administration has taken to stave off a default crisis among federal student loan borrowers. It outlines strategies for the department to help student loan borrowers stay current as collection efforts resume this year.

“It is critical to continue the initiatives and fully implement the actions outlined in this memo, as the Department plans to resume default penalties and mandatory collections later this year,” U.S. Undersecretary of Education James Kvaal writes in the memo addressed to Denise Carter, acting chief operating officer for Federal Student Aid.

There were around 7.5 million federal student loan borrowers in default, the Education Department said in 2022. That grim figure has led to comparisons with the 2008 mortgage crisis.

After the Covid-era pause on federal student loan payments expired in September 2023, the Biden administration offered borrowers a 12-month “on-ramp” to repayment. During that time, they were shielded from most of the consequences of falling behind on their payments. The relief period expired on Sept. 30, 2024.

Now federal student loan borrowers in default may see their wages garnished starting in October of this year, according to the Education Department. Meanwhile, Social Security benefit offsets could resume as early as August.

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The Department of Education memo directs its Federal Student Aid office to continue the Biden administration’s work to avoid defaults.

That includes making it easier for borrowers to enroll in affordable repayment plans, such as letting borrowers authorize the department to obtain their income information from the IRS and to automatically enroll borrowers in an income-driven repayment plan if they become 75 days delinquent on their loans. (IDR plans base a borrower’s monthly bill on their discretionary income and family size, and some are left with a $0 monthly bill. Any remaining debt is canceled after a certain period, typically 20 or 25 years.)

Borrowers should also be “screened for other forgiveness opportunities before they formally default,” the memo says.

The memo also encourages the Education Department to explore options for increasing the current interest rate incentive to get borrowers to sign up for automatic payments to their student loan servicer. As of now, borrowers can typically get an 0.25 percentage point reduction in their interest rate by doing so.

Later this year, for the first time, borrowers in default will be able to enroll in the Income-Based Repayment plan “and have a pathway to forgiveness,” the memo says. Currently, federal student loan borrowers need to exit default before they can access any of the income-driven repayment plans, including the IBR.

According to the memo, the Biden administration has eliminated most collection fees on federal student loans.

In early 2024, it also took steps to protect a higher amount of people’s Social Security benefits from the department’s collection powers. When the consequences of defaults resume, those with a monthly Social Security benefit under $1,883 can protect those benefits from offset, compared with the current protected amount of $750 in place today.

“Available data suggest that these actions will effectively halt Social Security offsets for more than half of affected borrowers and reduce the offset amount for many others,” the memo says.

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With less than one week until President-elect Donald Trump takes office, some House Republicans are pushing for swift extensions of the GOP’s 2017 tax legislation.

Absent action from Congress, trillions of tax breaks are scheduled to expire after 2025, including lower tax brackets, a more generous child tax credit and a 20% deduction for pass-through businesses, among others. More than 60% of taxpayers could see higher taxes in 2026 without extensions of provisions in the Tax Cuts and Jobs Act, or TCJA, according to the Tax Foundation.

“We must not leave families and small businesses waiting for Congress to do the right thing and provide tax relief at the 11th hour,” House Ways and Means Committee Chairman Jason Smith, R-Mo., said during a committee hearing on Tuesday.

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With full control of Congress and the White House, Republicans can pass legislation through a process known as “reconciliation,” which bypasses the filibuster. 

“We must make the Trump tax cuts permanent as soon as possible,” Smith said.

However, some lawmakers on both sides of the aisle have criticized the cost of fully extending Trump’s expiring tax provisions, particularly amid concerns about the federal budget deficit.

The three-month fiscal year 2025 deficit grew to $710.9 billion in December, nearly 40% higher than the same period the previous year, the U.S. Department of the Treasury reported on Tuesday.

Some Democrats have also pushed back on TCJA extensions, noting that they disproportionately benefit the wealthy, rather than middle-class families.

“We know that most of these [tax] cuts went to people at the very top,” Richard Neal, D-Mass., ranking member of the House Ways and Means Committee, said during the hearing. “The American people are living under this tax plan and they need relief from it.”

Fully extending Trump’s expiring tax cuts could cost an estimated $4.2 trillion over 10 years, according to a report released last week by the Treasury. 

If extended, the average family would save 2.2% of after-tax income, whereas the top 0.1% of earners would receive a 4.2% reduction, the report found. When you factor in income, the average family would save roughly $2,000 per year, while the highest 0.1% could see an average tax savings of about $314,000. These figures are based on 2025 data.

When it comes to Social Security, prospective beneficiaries often worry whether their benefits will be there when they retire.

Polls show Americans generally have low confidence in the program’s future.

A 2024 survey from Nationwide Retirement Institute found 72% of adults worry Social Security will run out of funding in their lifetime.

Likewise, an October Bankrate survey found that only 6% of Americans are “not at all concerned” their benefits won’t be paid when they reach retirement age. Gen Xers — who at ages 44 to 59 are getting closer to retirement — are most likely to be concerned about the program’s future, Bankrate found.

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President Joe Biden recently signed the Social Security Fairness Act, which will increase Social Security benefits for nearly 3 million individuals who also receive public pensions. Yet because that legislation did not provide for a way to fund those extra benefit payments, Social Security now has a shorter runway of time that it can afford to pay full benefits.

In 2024, Social Security’s trustees projected the program’s combined funds may last until 2035, at which point 83% of benefits would be payable. The newly enacted changes bring that date closer by six months, according to Congressional Budget Office estimates.

“There’s no new sources of revenue here, and so by definition, depletion is going to happen sooner versus later,” said David Blanchett, head of retirement research at PGIM DC Solutions.

To address the program’s shortfall, Congress may raise taxes, cut benefits or a combination of both.  

Those looming changes may influence claiming decisions — for all beneficiaries, as well as those affected by the new legislation.

The earliest claiming age is 62. But claiming that early results in permanently reduced benefits.

By waiting until full retirement age — which ranges from 66 to 67, depending on date of birth — retirees will receive 100% of the benefits they’ve earned.

By delaying even longer — up to age 70 — they stand to receive an 8% benefit boost for every year they wait past full retirement age.

Even if there are benefit cuts in the future, experts say it generally helps to have a higher benefit amount, so long as you can afford to delay claiming benefits.

Individuals who are in or near retirement may not see imminent changes.

“It’s incredibly unlikely that they’re going to reduce benefits for any current retirees,” Blanchett said.

However, for future beneficiaries, Social Security probably won’t be as generous in 20 or 30 years as it is today, Blanchett said. Exactly how benefits may change will depend on a variety of unknowns, including future immigration and birth rates.

That doesn’t mean Social Security benefits won’t exist at all, Blanchett said. But he said it would be wise to assess how receiving just 80% of today’s benefits, or even 50% of the current value for dual-income households, affects your retirement plan.

Social Security is meant to be just one part of a retirement income plan. If Social Security cuts happen, it helps to have more retirement savings or other assets to rely on.  

“The one thing that you can do to kind of help yourself with all these risks and uncertainties is just to save more so that you’re prepared for whatever may happen,” Blanchett said.

Joe Elsasser, a certified financial planner and president of Covisum, a Social Security claiming software company, said he recommends a “stress test” for retirement plans in light of the possibility of benefit cuts.

“If you can’t live how you want to live even in the presence of a cut, consider reducing spending a bit now so that you don’t have to reduce it a lot more later,” he said.

More than 72.5 million people now receive Social Security and Supplemental Security Income benefits, according to agency data.

Consequently, the nearly 3 million people who stand to benefit from the newly enacted Social Security Fairness Act are just a fraction of the beneficiary population.

The new law eliminates certain provisions — the Windfall Elimination Provision, or WEP, and the Government Pension Offset, or GPO — that reduced Social Security benefits for workers who had pensions or disability benefits from work where Social Security payroll taxes were not paid.

Because those changes have implications for an entire family, the new law may reach double the number of individuals who are directly affected by the changes, after accounting for spouses and children, according to David Freitag, a financial planning consultant and Social Security expert at MassMutual.

The potential difference in benefits may be dramatic. For example, one couple who would have faced a retirement funding shortfall when they had been affected by the WEP and GPO may now have a lifetime surplus of more than $300,000 once those offsets are eliminated, according to MassMutual’s computer models.

The effects of the new changes will vary on a case-by-case basis, and not all beneficiaries stand to see that level of increase. But even just $300 more in monthly income that’s annually adjusted for inflation can make a big difference in retirement, Freitag said.

“If you’re affected by this, you need to take a fresh look at your retirement plan,” Freitag said.