Federal Student Loan Debt Collection Resumes: What Borrowers Can Expect
Millions of Americans are about to feel the impact of a significant policy shift: the Trump administration has announced it will resume debt collection efforts on defaulted federal student loans, ending a pandemic-era pause that has been in place since March 2020. For borrowers who have fallen behind on payments, this change could mean serious financial consequences, including garnished wages, seized tax refunds, and withheld Social Security benefits.
Here’s what borrowers need to know about what’s coming, how it may affect them, and what options they have to get back on track with student loans.
A Return to Student Loan Collections
Starting May 5, 2025, the Department of Education will resume collections on defaulted student loans across a variety of federal programs, including Federal Family Education Loans (FFEL), Direct Loans, Perkins Loans, and Pell Grant overpayments. This marks the end of a four-year freeze on aggressive debt recovery efforts due to the COVID-19 pandemic.
The most immediate change will be the reinstatement of the Treasury Offset Program, which allows the federal government to withhold various payments from borrowers in default. This includes up to 100% of federal tax refunds, 15% of federal salaries, 15% of Social Security and Railroad Retirement benefits, and up to 25% of federal retirement payments.
In addition, the government will begin issuing notices this summer warning borrowers of wage garnishment—a process by which up to 15% of a borrower’s after-tax income can be deducted directly from their paycheck without a court order.
Who Is Affected?
According to the Department of Education, over five million borrowers are already in default, and another four million are in “late-stage delinquency,” meaning they are at high risk of defaulting soon. A borrower is typically considered in default after failing to make payments for 270 consecutive days (roughly nine months).
What’s more alarming is the broader trend: only 38% of federal student loan borrowers are currently up to date on payments. The agency warns that nearly a quarter of all borrowers could enter default in the coming months if no action is taken.
The Consequences of Student Loan Default
Defaulting on student loans can lead to a cascade of financial repercussions. In addition to the withholding of federal benefits and wages, borrowers in default will face:
- Credit damage: Default will appear on a borrower’s credit report and remain there for seven years, potentially affecting their ability to get a loan, rent an apartment, or even apply for a job.
- Loss of eligibility for aid: Defaulted borrowers lose access to deferment, forbearance, and additional federal student aid.
- Transcript holds: Some colleges may withhold academic transcripts, preventing borrowers from continuing their education or transferring.
- License suspensions: Certain states may suspend professional or driver’s licenses due to loan default.
Notably, private debt collection agencies are not involved in collecting defaulted federal student loans under this policy shift—collections will be handled directly by the federal government.
How to Know If You’re in Default
Borrowers will begin receiving notifications in the next two weeks if they are in default. These notices will include options for resolving the debt before penalties such as wage garnishment take effect.
It’s essential to read and respond to these communications. Ignoring them could mean the loss of control over how and when the debt is repaid.
How to Get Out of Default
Fortunately, borrowers have several options to exit default and avoid harsh collection methods:
Loan Rehabilitation: This option allows borrowers to make nine consecutive monthly payments (often at an affordable rate based on income). After successful completion, the default status is removed from their credit report.
Loan Consolidation: Borrowers can combine their defaulted loans into a new Direct Consolidation Loan, which can restore eligibility for benefits and prevent further collection actions.
Full Repayment: While this is not a viable option for many, paying the full amount due immediately will bring the borrower out of default.
Borrowers can also challenge wage garnishment if they are facing extreme financial hardship, are disabled, or have had the loan discharged through bankruptcy. The law requires the government to provide at least 30 days’ notice before starting wage garnishment and allows borrowers to request a hearing.
A Shift in Federal Policy on Student Loans
This resumption of debt collection comes alongside broader changes in federal student loan policy under the Trump administration. Unlike the Biden administration, which pursued various debt relief efforts—some of which were struck down by the Supreme Court—the current administration has made a sharp turn toward enforcement.
Education Secretary Linda McMahon emphasized this pivot, stating: “American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies.” The administration has also taken steps to scale back programs like Public Service Loan Forgiveness and income-driven repayment plans, and is working to shift oversight of the federal student loan system to the Small Business Administration.
Final Thoughts
With debt collections set to resume, millions of borrowers may soon feel the pressure of mounting loan obligations. If you’re in default—or nearing it—now is the time to act. Understanding your options and taking steps toward rehabilitation or consolidation could save you from significant financial distress.
As the federal government reignites its collection machinery, borrowers must stay informed, proactive, and prepared. The cost of inaction may be high, but with the right strategy, default doesn’t have to be the end of the road.
