The U.S. Department of Education has announced that it will resume collections on defaulted federal student loans starting Monday, May 5, 2025, effectively ending a pause that began in March 2020 during the COVID-19 pandemic. This decision marks a significant policy shift that will affect millions of borrowers who haven’t made payments in over five years.
Almost 10 million borrowers could soon be in default, representing nearly 25% of the federal student loan portfolio.
Be aware that the Treasury Department can begin using its offset program to collect on defaulted loans. In plain terms, this means they may recover what you owe through various channels – potentially reducing your tax refund, taking a portion of your federal paycheck, or even affecting your Social Security benefits. Taking action now can help you avoid these more serious consequences!
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What will happen next?
If you’re among those with defaulted loans, here’s what to expect:
- Over the next two weeks, you should expect to receive email communications from the Federal Student Aid office (FSA) about these developments.
- Borrowers should contact the government’s Default Resolution Group to make a monthly payment, enroll in an income-driven repayment plan, or sign up for loan rehabilitation.
- Later this summer, the Department will begin sending notices about wage garnishments, which means your employer could be required to withhold a portion of your paycheck to repay your defaulted loans.
- The department will also begin to authorize involuntary collection through the Treasury Department’s offset program, which could lead to garnishment of federal salaries, tax refunds, or social security for those with past-due debts.
- Your credit score could also be negatively impacted if you continue to miss payments.
What can you do now?
If you’re facing default, it’s recommended to be proactive before collections resume:
- Contact the Default Resolution Group immediately to discuss your options.
- Consider enrolling in an income-driven repayment plan, which can make your monthly student loan payments more affordable based on your income.
- Look into loan rehabilitation, which could provide a path to getting out of default.
Remember: The current administration has clearly stated there will not be any mass student loan forgiveness programs, so developing a repayment strategy now is essential for protecting your financial future.
Helpful strategies to manage student loan payments
Don’t let student loan payments derail your financial future. Consider these strategies to stay on track:
- Create a separate savings account specifically for your student loan payments
- Set up automatic payments to avoid missing due dates (and see if you qualify for a possible interest rate reduction)
- Explore employer student loan assistance programs (many companies now offer this benefit)
- Look into Public Service Loan Forgiveness if you work in public service, nonprofit, or government sectors
Additional Resources
The Department of Education has announced it is expanding support for borrowers through:
- Extended call center hours, including weekends
- An updated “Loan Simulator” tool to help calculate repayment options
- An AI assistant called Aidan to help with financial strategy
Helpful contacts and tools
- Federal Student Aid website: studentaid.gov
- Student Loan Borrower Assistance: studentloanborrowerassistance.org
- National Consumer Law Center: nclc.org/issues/student-loans
- Consumer Financial Protection Bureau: consumerfinance.gov/student-loans
By taking action before May 5, you can avoid the most severe consequences of default and get on a path toward successfully managing your student loan debt. The future you will thank you for handling this now – think of all the things you could do without the weight of defaulted loans hanging over you.
