The U.S. Department of Education has announced that collections on defaulted federal student loans will resume on May 5, 2025, ending a pause that began in March 2020 due to the COVID-19 pandemic.
Key Points:
- Resumption of Collections: Starting May 5, the Department will restart collections on defaulted loans, including wage garnishments and the Treasury Offset Program, which can withhold tax refunds and Social Security benefits.
- Borrower Notifications: Over the next two weeks, the Office of Federal Student Aid (FSA) will contact borrowers in default to provide options for returning to good standing before involuntary collections begin.
- Loan Rehabilitation: Borrowers can enter a rehabilitation program by making nine on-time payments within ten months, which can remove the default status from their credit reports. Borrowers are urged to contact the Default Resolution Group to make a monthly payment, enroll in an income-driven repayment plan, or sign up for loan rehabilitation.
- Impact: This change affects over 5 million borrowers currently in default and an additional 4 million who are delinquent. Borrowers are encouraged to act promptly to avoid negative consequences. Detailed information to help borrowers get out of default is also available at StudentAid.gov/end-default.
The U.S. Department of Education released the following statistics with the announcement:
- 42.7 million borrowers owe more than $1.6 trillion in student debt.
- More than 5 million borrowers have not made a monthly payment in over 360 days and sit in default—many for more than 7 years—and 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. When this happens, almost 25 percent of the federal student loan portfolio will be in default.
- Only 38 percent of borrowers are in repayment and current on their student loans. Most of the remaining borrowers are either delinquent on their payments, in an interest-free forbearance, or in an interest-free deferment. A small percentage of borrowers are in a 6-month grace period or in-school.
- Currently, almost 1.9 million borrowers have been unable to even begin repayment because of a processing pause put in place by the previous administration. Since August 2024, the Department has not processed applications for enrollment in any repayment plan such as Income-Based Repayment, Income-Contingent Repayment, or PAYE. The Department is currently working with its federal student loan servicers and anticipates processing to begin next month.