Federal Government to Restart Collections on Defaulted Student Loans
Last updated May 1, 2025
After a pause of more than five years, on May 5 the federal government will resume collections on defaulted student loans. The U.S. Department of Education will target borrowers who haven’t made payments for 270 days or more.
Listen to audio highlights of the story below:
The department’s Federal Student Aid (FSA) office will notify borrowers via email that their loans are entering “involuntary” collection unless they start making payments or enroll in an Education Department forbearance or deferment program. Borrowers are urged to contact the Default Resolution Group to start that process. This summer, FSA will begin sending formal wage-garnishment notices.
According to the Department of Education, at least 5 million borrowers will immediately be impacted when it restarts its collection machine. An additional 4 million borrowers have loans that are in the “late stage of delinquency,” meaning they are 90 to 180 days past due and nearing default.
“American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies,” said Secretary of Education Linda McMahon, in a statement announcing the policy change in late April.
The first Trump administration paused collections on direct federal loans in March 2020, during the pandemic, and the Biden White House extended that pause. The second Trump administration now warns borrowers that there will be serious consequences for non-payment, including wage garnishment and other collection efforts, which could cause borrowers’ credit scores to drop dramatically.
The government, unlike private lenders, does not need a court order to garnish wages, intercept tax refunds, or seize Social Security benefits.
“Borrowers I talk to are terrified,” said Mike Pierce, executive director of the Student Borrower Protection Center. “This is the first time they’ve received a threatening letter like this, maybe in the entire time they’ve had a student loan. And knowing that they have a right to make payments they can afford only gets them so far.”
The Department of Education offers several programs that allow student loan borrowers who are unemployed or don’t make a lot of money to pay nothing each month and keep their loans out of default status.
“But right now, the federal government isn’t processing applications for affordable loan payments,” Pierce told Checkbook. “Instead, they’re choosing to seize tax refunds, seize people’s Social Security payments, and eventually garnish borrowers’ wages.”
What to Do If You Can’t Afford to Pay
If you’ve fallen behind on your payments, but are not yet 270 days late, your goal is to avoid default status. To do that, you need to be proactive and persistent.
“The last thing you want to do is run and hide,” said Bruce McClary, a senior vice president at the National Foundation for Credit Counseling (NFCC). “This is your chance to save yourself from the worst circumstances [of defaulting], and the best tool you have right now is communication.”
Contact your servicer to find out the status of your loans and what programs are available to get you back on track. The Department of Education offers three income-driven repayment plans, where monthly payments are based on the borrower’s income. For some people, that means paying nothing each month.
Visit StudentAid.gov to make sure your contact information is up to date, so your loan servicer and the Department of Education can reach you with updates.
What If You Are in Default?
The Department of Education will notify you 65 days before it starts withholding government benefits to repay your loan. Act within that time, and you can stop wage garnishment and other withholding from happening.
If you can’t afford your loan payments, try to get a repayment agreement that lets you lower monthly payments. Under some income-driven repayment plans, including the new Saving on a Valuable Education (SAVE) Plan, your monthly payment could be lowered to $0. But with this option, your loan will still be in default.
The Department of Education provides two primary ways to get out of default:
- Consolidate your defaulted student loan(s) into a Direct Consolidation Loan. With a consolidation loan, the accrued interest is added to the principal, and future interest payments will be based on the higher balance. This could result in a higher payment than with other options for getting out of default.
- Rehabilitate your loan(s) by negotiating a payment plan with your loan servicer. If you make on-time payments for nine consecutive months, your loans will no longer be in default. Depending on the type of loans and your income, the rehabilitation loan payment could be as little as $5 per month.
If you get a collection notice about a debt you don’t owe or for an amount that doesn’t seem right, the Department of Education has an appeals process. The Student Borrower Protection Center suggests contacting your members of Congress, who may be able to help. A blog on the center’s website explains how to open a constituent case.
The Big Picture
“Student loan debt doesn’t happen in a vacuum,” NFCC’s McClary noted. If you’re struggling to pay your student loans, chances are you’re having problems with other types of debt, too.
McClary suggests working with a debt counselor to take “a holistic approach” to all the issues related to your financial situation.
Checkbook advises contacting a nonprofit credit counselor. You can find one by using the National Foundation for Credit Counseling website. A certified counselor will help you review your financial goals, create a budget, and create a personalized action plan. The initial consultation is typically free.
Contributing editor Herb Weisbaum (“The ConsumerMan”) is an Emmy award-winning broadcaster and one of America's top consumer experts. He has been protecting consumers for more than 40 years, having covered the consumer beat for CBS News, The Today Show, and NBCNews.com. You can also find him on Facebook, Twitter, and at ConsumerMan.com.