Trump’s Education Dept Rejects 327,000 Loan Applications Over a Technicality

Wage Garnishment Begins This Month

The Department of Education just denied more than 327,000 borrowers who tried to switch to a more affordable repayment plan.

The reason? They checked a box asking for the lowest monthly payment instead of picking a specific plan by name.

Now those borrowers are stuck, either paying more than they can afford or watching interest pile up while they wait.

And for the 5. 5 million Americans already in default, things are about to get worse. Wage garnishment notices start going out this week.

One Checkbox Triggered Mass Rejections

The federal student loan application gives borrowers a choice: pick a specific income-driven repayment plan or check a box requesting the plan with the lowest monthly payment.

In August 2025, the Education Department rejected 327,955 applications from people who chose that second option.

The agency called it an unforeseen ambiguity. Critics called it an excuse.

Higher education expert Mark Kantrowitz said the justification was weak and borrowers were simply trying to get the most affordable option available to them.

800,000 More Applications Are in Limbo

The rejections are only part of the problem. As of November 30, another 802,730 IDR applications were still waiting for a decision.

That backlog has been stuck near 800,000 for months. Before the rejections, it was over a million. The numbers only came to light because of a lawsuit.

The American Federation of Teachers sued the Education Department in March, and as part of the settlement, the agency has to file monthly status reports with the court.

The SAVE Plan Is Gone for Good

The Biden administration created the SAVE plan in 2023, calling it the most affordable repayment option ever. It let 4.6 million borrowers pay $0 per month and promised faster loan forgiveness.

Republican states sued, courts blocked it, and borrowers were placed in forbearance starting July 2024.

In December 2025, the Trump administration reached a settlement with Missouri to end the program permanently.

More than 7 million borrowers must now choose a different plan.

Garnishment Notices Go Out This Week

The Education Department confirmed it will begin garnishing wages from defaulted borrowers starting the week of January 7, 2026.

About 1,000 notices will go out first, with that number increasing each month. Borrowers will get 30 days notice before money starts coming out of their paychecks.

The government paused all collections during COVID, but those protections are now fully gone. Tax refunds and Social Security benefits are already being seized.

5.5 Million Borrowers Are in Default

A federal student loan goes into default after 270 days without a payment.

Right now, more than 5.5 million borrowers have crossed that line. The Education Department warned earlier this year that the number could reach 10 million soon.

Default wrecks your credit score, makes you ineligible for more federal aid, and opens you up to wage garnishment, tax seizures, and collection fees that can add thousands to what you owe.

They Can Take 15% of Your Paycheck

Once wage garnishment starts, the government can order your employer to withhold up to 15% of your disposable income every pay period.

Unlike private debt collectors, the Education Department does not need a court order. Borrowers can request a hearing to challenge the garnishment, but they have to act fast.

If your address on file is outdated, you might not even see the notice before the money starts disappearing.

Staff Cuts Made the Backlog Worse

In March 2025, the Trump administration cut nearly half of the Education Department staff. Many of those laid off were the people who processed loan applications and helped borrowers navigate repayment.

AFT President Randi Weingarten blamed the backlog directly on those cuts.

At the current pace, with only 170 loan discharges processed in November, experts say the department will never fully clear the backlog.

Almost Nobody Got Forgiveness Last Month

The December court filing revealed just how slow things have gotten.

In November, only 170 borrowers had their loans canceled through income-driven repayment plans. Another 280 got forgiveness through Public Service Loan Forgiveness.

For context, more than 42 million Americans hold student debt, and hundreds of thousands have been waiting years for forgiveness they already qualify for.

One plaintiff in the AFT lawsuit has been eligible since May 2025 and is still waiting.

New Law Rewrites the Entire System

The One Big Beautiful Bill Act, signed July 4, 2025, overhauled federal student loans.

It eliminated SAVE, PAYE, and ICR as options for new borrowers and replaced them with a new Repayment Assistance Plan starting July 2026.

Borrowers already enrolled in those plans must switch by July 2028 or get moved automatically.

The new RAP plan requires a $10 minimum payment, ending the $0 option. Repayment terms can stretch up to 30 years.

Experts Say Reapply Right Now

If your application was rejected, file a new one immediately.

This time, pick a specific plan. The best option for most borrowers is Income-Based Repayment, which caps payments at 10% or 15% of discretionary income and leads to forgiveness after 20 or 25 years.

Do not wait. Borrowers stuck in forbearance are watching their balances grow. Those in default are about to lose part of every paycheck.

The tools to check your options are on the Federal Student Aid website.

The $1.6 Trillion Weight on Americans

Nearly 43 million people owe federal student loans totaling more than $1.6 trillion.

That makes student debt the second-largest type of consumer debt in the country, behind only mortgages. Half of borrowers are over 30, and a quarter are over 45.

This is not just a problem for recent graduates. The average balance is about $39,000, but 3.6 million borrowers owe more than $100,000.

For millions, the bills are not going away anytime soon.

This article was created with AI assistance and human editing.

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