One morning your payroll run includes an envelope you have never seen before: a federal agency is ordering you — the employer — to take up to 15% out of one of your employee's paychecks and send it to the government. No court hearing. No judge's signature. Just an order, a deadline, and your business in the middle of your worker's defaulted student loans.
After a years-long pause on collections, the U.S. Department of Education restarted involuntary collection on defaulted federal student loans in 2026, and administrative wage garnishment is one of its main tools. If you employ anyone with defaulted federal loans — and with almost 30% of borrowers behind on payments by late 2025, the odds are not trivial — an order with your company name on it may already be in the mail.
This guide walks through exactly what that order is, the math that caps what you withhold, what happens when it collides with other garnishments, what you may not do to the employee, and how to book the whole thing cleanly.
Why No Court Was Involved (and Why the Order Is Still Binding)
Most wage garnishments start with a creditor suing in court and winning a judgment. Federal student loan garnishment skips that step entirely. Under the Higher Education Act, the Department of Education — and the guaranty agencies and contracted collectors working for it — can issue an administrative wage garnishment (AWG) order directly to an employer, with no court order required.
That surprises a lot of small business owners, and some ignore the order because it "doesn't look like" a real garnishment. That is the single most expensive mistake in this article. An AWG order carries the force of federal law. Once you receive one, you are legally required to withhold and remit. Employers that fail to comply can be held liable for the amounts they should have withheld, and many states add penalties on top.
A federal AWG also overrides state law. A handful of states sharply limit or prohibit wage garnishment for ordinary consumer debts, and employers in those states sometimes assume they are exempt. They are not — federal law preempts state garnishment protections when the creditor is the federal government collecting defaulted student loans.
Before the order reaches you, the borrower gets a 30-day written notice and a chance to inspect the loan records, request a hearing (to dispute the debt, the amount, or claim financial hardship), or enter a voluntary repayment agreement. By the time you are holding the withholding order, those pre-garnishment steps have already run their course. Your job is not to re-litigate the debt. Your job is to follow the order.
The Two Numbers That Control Every Paycheck: 15% and $217.50
Every AWG calculation comes down to two federal limits. Get these right and the rest is paperwork.
Limit 1: No more than 15% of disposable earnings. Disposable earnings are what remains after legally required deductions — federal, state, and local income taxes, the employee's share of Social Security and Medicare, state unemployment insurance, and any retirement contributions required by law. Voluntary deductions do not count: 401(k) contributions, health insurance premiums, union dues, and similar electives stay in the disposable-earnings base even though they reduce take-home pay. Compute the 15% on that base, not on net pay.
Limit 2: The employee keeps at least 30 times the federal minimum wage per week. At the current $7.25 federal minimum wage, that floor is $217.50 per week. If withholding the full 15% would drop the employee's weekly disposable earnings below $217.50, you withhold only enough to leave the floor intact. The floor scales with pay frequency:
- Weekly: $217.50
- Every two weeks: $435.00
- Twice a month: $471.25
- Monthly: $942.50
A worked example makes this concrete. Suppose a biweekly employee has $1,800 in disposable earnings per pay period. Fifteen percent is $270, and $1,800 − $270 = $1,530, well above the $435 floor — so you withhold the full $270. Now suppose a part-time weekly employee has $240 in disposable earnings. Fifteen percent is $36, but $240 − $36 = $204, below the $217.50 floor — so you withhold only $22.50. When the floor binds, the floor wins.
Garnishment continues every pay period until the loan is paid in full, rehabilitated, consolidated out of default, or the agency releases the order. There is no fixed end date on the order itself, so calendar a recurring review rather than a stop date.
Your Seven-Step Response When an Order Arrives
Treat the first order like a fire drill you only get to run once — set up the process correctly and every later order is routine.
1. Read the whole order before touching payroll. Confirm the employee's identity (name, Social Security number, address), the withholding rate, the pay period to start, and exactly where and how to remit. Orders specify a payment address or electronic remittance channel plus a case or account identifier that must accompany every payment. A misdirected payment still counts as your failure to remit.
2. Verify employment and start on time. If the person still works for you, begin withholding no later than the pay period indicated — usually the first full pay period after receipt. If the employee no longer works for you, notify the issuing agency promptly in writing instead of ignoring the letter. Silence reads as noncompliance.
3. Compute disposable earnings correctly. This is where small employers most often go wrong. Build the calculation from gross pay minus only legally required deductions, and document each line. Keep that worksheet with the payroll records for the pay period — if the employee or the agency ever disputes the amount, your worksheet is your defense.
4. Apply the 15% cap and the weekly floor together. Both limits apply to every paycheck. Recompute each pay period rather than setting a fixed dollar amount, because overtime, bonuses, and unpaid time off move disposable earnings around. A bonus check is wages too — the same percentage and floor apply.
5. Remit fast and label everything. Send the withheld amount to the designated recipient on the schedule the order requires, with the case identifier on every payment. Do not hold withheld funds in your operating account any longer than necessary; that money is not yours, and commingling it with business cash creates exactly the kind of mess that draws scrutiny.
6. Give the employee a clear pay stub, not a legal lecture. Show the garnishment as its own line item with the case number. Tell the employee — in writing, once — that withholding is required by federal order, that it continues until the agency releases it, and where to direct questions: the Department of Education's Default Resolution Group at 1-800-621-3115. Do not try to adjudicate whether the debt is valid, and do not offer to "pause" withholding while the employee sorts it out. You have no authority to pause it.
7. Keep everything for at least three years. File the order, every computation worksheet, every pay stub showing the deduction, and every remittance confirmation together. Three years matches the federal payroll-record baseline, and several states require longer — when in doubt, keep garnishment files with your permanent payroll records.
When a Student Loan Order Collides With Other Garnishments
Sooner or later an employee with a student loan order will also owe child support, back taxes, or a creditor judgment — and you will hold two or more withholding orders at once. Three rules keep you out of trouble.
First, the general federal ceiling still matters. Under Title III of the Consumer Credit Protection Act (CCPA), ordinary garnishments are generally capped at 25% of disposable earnings. Child support, bankruptcy orders, and federal or state tax levies play by their own separate limits. A student loan AWG has its own 15% cap inside that framework — it does not simply stack another full 25% on top of everything else.
Second, federal law sets the caps but not the pecking order. The CCPA deliberately establishes no priority ranking among garnishment types — priority is determined by state law or the other federal law behind each order. The widely followed practical order is child support first, tax levies next, then remaining orders generally in the sequence received, all subject to the applicable caps. Your state's rules control the details, and they vary enough that a multi-garnishment collision is the one situation where a quick call to your payroll provider or employment counsel pays for itself.
Third, never freelance the math in the employee's favor — or the creditor's. Withholding too little exposes you to liability for the shortfall; withholding too much exposes you to a wage claim from the employee. When orders conflict or the caps overlap ambiguously, follow the most recent order's instructions, stay within the lowest applicable cap, document your reasoning, and get professional guidance before the next pay run — not after.
What You Must Never Do to the Employee
Two prohibitions carry real enforcement risk, and both tempt well-meaning employers.
You may not fire — or punish — an employee over a single garnishment. Title III of the CCPA prohibits discharging an employee whose earnings are garnished for any one debt, no matter how many levies or proceedings that single debt generates. Demotions, hour cuts, or sudden "performance issues" that follow a garnishment order look like retaliation to investigators even when other factors genuinely contributed, so keep your performance documentation clean and contemporaneous. Note the limit of this shield: it covers one debt. Once a second, unrelated garnishment arrives, the federal protection falls away (though many states extend broader protections, and regulators scrutinize quick terminations after any garnishment).
You may not charge the employee a "processing fee" unless your state clearly allows it. Some states permit a small administrative fee for handling garnishments; many do not, and federal student loan orders do not authorize one. Deducting a fee you are not entitled to is an unlawful deduction from wages, full stop.
What you can do is help within your lane: hand the employee the Default Resolution Group contact, mention that loan rehabilitation (typically nine reasonable monthly payments) and consolidation can get a loan out of default and stop the garnishment, and keep the conversation factual and brief. The fastest end to your paperwork is the employee curing the default — pointing them at the official exit ramps serves you both.
Booking Garnishments So Your Ledger Stays Clean
Garnishments are a balance-sheet item, not an expense, and booking them that way keeps your profit-and-loss statement honest.
Set up a current liability account called Garnishments Payable (one account works; use the memo or sub-accounts per employee and case number when you have several). Each pay run makes two movements. First, wages are recorded as usual, with the withheld amount credited to Garnishments Payable instead of to cash:
- Debit Wage Expense for gross pay, credit the usual tax and benefit liabilities, credit Garnishments Payable for the withheld amount, and credit Cash (or Wages Payable) for the net check.
Second, when you remit to the agency, debit Garnishments Payable and credit Cash, referencing the case number.
Reconcile the liability account monthly — its balance should be zero (or only the current period's in-transit amount) after each remittance. A growing balance means withholdings are not reaching the agency, which is precisely the failure that creates employer liability. If you run multiple garnishments, reconcile per case number, not just in total. And because the withheld dollars are never your money, never borrow from the payable balance to smooth cash flow; that converts a clerical duty into a potential trust-fund-style problem.
Keep an Eye on a Moving Landscape
A few context items worth knowing, without overreacting to any of them. The 2026 restart follows a years-long collections pause, so servicers and agencies are working through a large backlog — which is one more reason to verify every order's identifying details before the first withholding. Lawmakers have floated proposals to suspend or further restrict student loan garnishment, but proposals are not law: unless and until Congress changes the statute or the Department changes its rules, an order in your hands is fully enforceable. Finally, remember that borrowers who rehabilitate or consolidate out of default exit garnishment — if an employee tells you their loan status changed, ask for the agency's written release and keep withholding until you hold it.
Simplify Your Payroll Recordkeeping
A wage garnishment order tests whether your payroll records can withstand outside scrutiny — per-pay-period calculations, case-numbered remittances, and a reconciled liability account, all retrievable years later. Building that paper trail inside plain-text, version-controlled books means every worksheet, entry, and remittance is traceable instead of buried in a payroll portal you might switch away from. Beancount.io offers plain-text accounting that gives you complete transparency and control over your financial data — no black boxes, no vendor lock-in. Get started for free and keep payroll compliance audit-ready from the first order onward.