Student loan borrowers who haven’t paid their debt now face seeing their wages garnished, Social Security benefits reduced, and more as debt collection resumes in 2025.
After a five-year reprieve, the protection from debt collection has ended for student loan borrowers who consistently failed to make payments. This cessation of the pandemic-era pause is now impacting hundreds of thousands of individuals with long-overdue federal student debt.
The U.S. Department of Treasury issued an official 30-day notice during the week of May 5 to approximately 195,000 borrowers who have been delinquent on their student loan payments for at least nine months. This notification informed them that their federal benefit checks would be subject to reductions starting in early June to recoup the outstanding debt.
Furthermore, the Department of Education has announced that later this summer, all 5.3 million borrowers currently in default will receive a similar 30-day notice, signaling the impending garnishment of their wages to address their long-unpaid student loan obligations. The suspension of federal student loan collection activities had been in place since the initial stages of the COVID-19 pandemic in 2020.
Borrowers facing default are being strongly encouraged by the Department of Education to reach out to its dedicated default resolution group. This group can assist borrowers in establishing a manageable monthly payment plan, enrolling in an income-driven repayment plan that aligns payments with their earnings, or exploring the option of loan rehabilitation to bring their loans back into good standing.
Kathryn Ellywicz, a former financial counselor at GreenPath Financial Wellness, a national non-profit counseling and debt management organization, characterized this situation as potentially “one of the largest groups of people to simultaneously go into default at the same time,” highlighting the significant scale of borrowers now facing the resumption of collection efforts.
The prospect of dealing with debt collection presents a considerable challenge for many borrowers. The consequences can include deductions from paychecks through wage garnishment, the seizure of federal income tax refunds, and even the potential offset of Social Security benefits to cover the outstanding college debt. However, the report emphasizes that borrowers still have opportunities to take proactive steps to mitigate the impact of these collection actions by pursuing pathways out of default.
A significant hurdle for borrowers seeking to navigate this process, according to advocates, is the diminished staffing at the Department of Education following cuts implemented by the Trump administration. Mike Pierce, executive director of the Student Borrower Protection Center, a Washington, D.C.-based advocacy group, stated, “What we’re hearing from borrowers is that they’re having a very hard time actually taking advantage of those rights. Their calls are getting dropped. They’re getting bounced around. They’re waiting on hold for hours.” This suggests that borrowers may face significant administrative challenges in accessing the assistance they need.
The report advises borrowers to be prepared to exert extra effort, potentially involving repeated attempts to contact the Department of Education, to get their repayment plans on track. Pierce suggested that in cases of persistent difficulties, borrowers may need to contact their congressional representatives for assistance, as congressional caseworkers can often help constituents resolve issues with federal agencies. The Student Borrower Protection Center provides online resources at ProtectBorrowers.org/caseworktool offering guidance on how to request such assistance.
A concerning aspect highlighted by Pierce is that a significant number of borrowers in default may have only attended some college courses without obtaining a degree, and subsequently find themselves in lower-paying jobs. These individuals will particularly need effective solutions to prevent wage garnishment or the seizure of their tax refunds.
The report also touches upon the broader context of student loan forgiveness. Many borrowers with lower outstanding balances would have been eligible for loan forgiveness under former President Joe Biden’s debt relief plan. However, this initiative was blocked by the U.S. Supreme Court in 2023, preventing the forgiveness of up to $10,000 (or up to $20,000 in some cases) of federal student loan debt for individual borrowers.
The criteria for federal student loans entering default are typically 270 days of nonpayment, equating to roughly nine months. Borrowers are advised to review the specific terms of their individual loan agreements. While default is generally recognized after 270 days of missed payments, the loans are often transferred to the Department of Education’s default collections program after 360 days of delinquency. The StudentAid.gov website advises that loans may be in default if they are over 360 days delinquent, and provides a portal for borrowers to check their loan status.
Mark Kantrowitz, a student loan expert and author, noted that prior to the pandemic, approximately 7 million borrowers were in default on their federal student loans. However, around 2 million of these borrowers took advantage of the Department of Education’s “Fresh Start” initiative, a one-time program that allowed them to return their loans to a current status by the end of September 2024. Participation in “Fresh Start” enabled borrowers in default to improve their credit standing and become eligible for more affordable income-driven repayment plans.
The number of borrowers in default is anticipated to rise, as the general resumption of student loan payments only began in October 2023, and borrowers who did not make payments were afforded an additional year-long “on-ramp” period. This temporary “on-ramp,” lasting from October 2023 through September 30, 2024, was intended to protect financially vulnerable borrowers by preventing loan default during that time. While delinquent payments were not reported to credit bureaus during this period, interest continued to accrue. Kantrowitz pointed out that the earliest a borrower could newly enter default following the end of the “on-ramp” is June 27, 2025, given the 270-day nonpayment threshold.
A Department of Education release has presented a concerning estimate, suggesting that “4 million borrowers are in late-stage delinquency (91-180 days). As a result, there could be almost 10 million borrowers in default in a few months.” However, Kantrowitz, who has extensive experience tracking student loan debt, believes these estimates regarding borrowers on the verge of default may be exaggerated, citing historical data indicating that most of these borrowers will likely pursue other options to avoid default.
Ellywicz advises borrowers who have not made student loan payments in the past five years to proactively prepare to take action. She acknowledges that re-integrating loan payments into a budget after such a long hiatus can be overwhelming. Her recommendations include visiting StudentAid.gov to ascertain the total loan amount owed, identify the loan servicer, and explore and apply for income-based repayment plans that can significantly lower monthly payments. She also reminds borrowers that interest charges resumed in October 2023, potentially increasing their overall debt.
Ellywicz emphasizes the renewed availability of income-based repayment plans on the StudentAid.gov website. She also cautions borrowers to be wary of potential scams from companies offering assistance with getting out of default for a fee, reiterating that the Department of Education and loan servicers provide this help free of charge.
The report details the consequences of federal student loan default, including the initiation of wage garnishment by servicers without the need for prior legal action. The Department of Education is required to send a certified letter to the borrower’s last known address 30 days before contacting their employer to begin wage garnishment. Borrowers who have been delinquent for many months are urged to proactively communicate with their loan servicers and credit counseling agencies to explore available solutions.
Ellywicz stresses the importance of addressing the issue head-on, even if it feels shameful, as open communication is more likely to lead to discovering previously unknown options for resolution. GreenPath Financial Wellness offers counseling services for individuals struggling with student loan debt and other financial challenges.
The two primary methods for exiting student loan default are loan rehabilitation and loan consolidation. Rehabilitation involves making nine out of ten consecutive, on-time, full, voluntary, reasonable, and affordable payments. Consolidation can also be part of a loan rehabilitation agreement. While consolidation is a faster process, Kantrowitz notes that it does not remove the default notation from the borrower’s credit history, and accrued interest and collection costs may be added to the outstanding loan balance. Borrowers who rehabilitate their loans through consolidation may also be limited to income-driven repayment plans.
The Department of Education states that it will provide support to borrowers in selecting the most suitable repayment plan through resources such as a new Loan Simulator, an AI Assistant named Aidan, and extended call center hours for servicers. An enhanced Income-Driven Repayment process aims to simplify enrollment and eliminate the annual income recertification requirement for borrowers.
U.S. Secretary of Education Linda McMahon is urging all colleges and universities receiving federal funding to actively reach out to their former students by June 30 to remind them of their obligation to repay any federal student loans that are not currently in deferment or forbearance. McMahon also criticized some institutions for saddling students with substantial debt without adequately ensuring their preparedness for the job market.
The report outlines the mechanics of administrative wage garnishment, explaining that the Department of Education can require employers to remit up to 15% of a borrower’s disposable pay (income after taxes and other legal obligations) to repay defaulted loans. Borrowers must be left with at least 30 times the federal minimum wage ($7.25 per hour), which currently equates to $217.50 per week, after the garnishment. Borrowers have the right to request a hearing to challenge the wage garnishment or offset based on demonstrated financial hardship, such as involuntary job loss within the past 12 months, proof of full debt repayment, bankruptcy discharge, pending bankruptcy proceedings, or total and permanent disability.
Furthermore, the report explains that the federal government can offset federal income tax refunds to recover defaulted federal student loan debt. While refunds already received for the 2024 tax year are protected, those who obtained filing extensions face a greater risk of their 2024 refund being seized if their loans are in default. Borrowers can potentially adjust their withholdings for future tax years to reduce the amount of any potential offset.
Similarly, the Department of Education can offset Social Security benefits to collect on defaulted federal student loans. The Consumer Financial Protection Bureau estimates that approximately 452,000 borrowers aged 62 and older with defaulted loans, who are likely receiving Social Security benefits, are at risk of such offsets. Currently, $750 per month of Social Security income is protected from offset. Kantrowitz emphasizes the potential hardship this can impose on recipients who may rely on these benefits for essential living expenses, potentially pushing those with Social Security as their sole income source below the poverty line.
The report concludes by detailing the negative consequences of student loan default, including a significant drop in credit scores, loss of eligibility for future federal student aid, inability to change repayment plans or request deferment and forbearance, and the likelihood of forced collections such as tax refund offsets. It urges borrowers facing difficulties in making payments but who have not yet defaulted to explore options such as economic hardship deferment, unemployment deferment, cancer deferment, or general forbearance for short-term financial challenges. For long-term financial problems, switching to extended or income-driven repayment plans is recommended to lower monthly payments and avoid default, although these strategies may increase the total cost of the loan over time. Enrolling in autopay can also help prevent late payments and may qualify for a small interest rate reduction.
