By: Allison Scholar
ComplianceJune 26, 2025
Student loan collections resume: What employers need to know about wage garnishments
In May 2025, the U.S. Department of Education (DOE) officially resumed collections on federal student loans that had been paused since the COVID-19 pandemic.
This decision is expected to significantly increase the volume of wage garnishment orders employers receive, particularly as more than five million borrowers are already in default — a number projected to exceed ten million in the coming months. This means nearly 25% of all borrowers may soon be subject to collection actions.
As a result, employers should prepare for a possible surge in wage garnishments and related service of process (SOP) documents. The probability of wage garnishments and legal notices being served is rising, and failure to respond appropriately can lead to serious financial and legal consequences.
How wage garnishment works
Wage garnishment is a legal process that allows creditors to collect unpaid debts by deducting a portion of a debtor’s wages. For most debts, this process requires a court order and proper service of process to the employer. However, for federal student loans, the government can bypass the courts and send garnishment orders directly to employers.
Employers are legally obligated to comply with these orders. Once notified by the government, employers must withhold a percentage from a debtor’s paycheck and send it to the federal agency until the debtor is no longer in default on their debt. Additionally, unlike other consumer debt, there is no statute of limitations on collections on defaulted federal student loans – the federal government can collect them indefinitely. Ignoring or mishandling garnishment orders can result in penalties, including being held liable for the full amount of the debt, plus interest and legal fees.
Proper handling of wage garnishment orders is critical
Timely and accurate handling of SOP and wage garnishment orders is essential. Many SOP documents require a response within 20 days, and wage garnishment orders must be acted upon immediately. Noncompliance can lead to default judgments and significant financial liability for employers. These judgments vary by state and the type of wage garnishment. In most states, the employer is liable for the full amount of the debtor’s outstanding debt.
Best practices for managing wage garnishments and SOP
To mitigate risk and ensure compliance, employers must be proactive in establishing policies, procedures, and controls in preparation for potential wage garnishment orders and SOP. Employers should:
- Establish clear internal policies and procedures for handling SOP and garnishment orders.
- Ensure the right personnel receive and act on legal documents promptly.
- Use centralized, cloud-based systems to track and manage SOP and garnishment orders.
- Confirm receipt and acknowledgment of all SOP documents.
- Respond to all garnishment orders, even if the employee no longer works for the company.
Registered Agent Services
Appoint CT Corporation as your Registered Agent in three easy steps online or call 855.862.3601 to speak with one of our business compliance consultants.
The importance of a registered agent in the wage garnishment process
Your registered agent plays a key role in managing wage garnishment and legal documents. They must be available at the registered office during normal business hours to receive legal notices, including service of process (SOP). This ensures nothing is missed and that documents requiring a signature are handled promptly.
Once received, your registered agent logs and digitizes the SOP, then follows any specific delivery instructions. To help your business stay compliant and organized, they also confirm receipt and make it easy for your team to acknowledge documents in a way that fits your workflow.
For more information, see Four key steps in end-to-end service of process (SOP) management.
How CT Corporation can help
With the DOE’s renewed collection efforts and the growing number of borrowers in default, employers must act now. As a leading Registered Agent, CT Corporation offers expert integration solutions that provide a reliable, scalable way to manage the increasing volume of SOP and wage garnishment orders. These solutions can ensure compliance, reduce liability, and improve operational efficiency through:
- Faster processing of SOP and garnishment orders.
- Reduced risk of missed deadlines or noncompliance.
- Improved data accuracy through automated metadata transfer.
- Enhanced control over legal workflows and compliance activities.
To learn more about the ways in which CT Corporation can help your organization streamline the management of SOP documents and wage garnishment orders, contact a CT Corporation specialist today.
Related resources:
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FAQs
What is wage garnishment?
Wage garnishment is a legal procedure in which a creditor secures a court order to collect a debt by taking a portion of the debtor's wages, bank accounts, or assets. This process enables creditors to directly recover outstanding amounts from the debtor’s income or assets to settle unpaid debts.
How does wage garnishment work?
Wage garnishment regulations require employers to deduct a specific percentage from an employee's paycheck until the individual has fulfilled their debt obligations. Other forms of garnishment include bank account garnishment, tax refund garnishment, and garnishment of property or assets.
What is service of process?
Service of process is the method by which one party in a legal case notifies another party about the commencement of legal action. It's essential to provide proper notice to the employer when requesting that they direct the wages of the judgment debtor to the judgment creditor.
What are the legal repercussions of failing to comply with wage garnishment orders?
Failing to comply with wage garnishment orders can result in substantial expenses. Employers might be held responsible for the full amount of the employee's judgment, along with penalties, interest, and legal fees.
What steps should employers take upon receiving a wage garnishment order?
As an employer, you must establish an effective system for managing wage garnishment orders and service of process documents as soon as these documents are received at your registered office. Proper management of wage garnishment orders is essential for minimizing the risk of default judgments and ensuring compliance.
Are employees protected under wage garnishment laws?
Indeed, employees are afforded legal protections, including restrictions on how much of their wages can be garnished.
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