Student Loan Defaults Head to Collections May 5: All You Need to Know

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Student Loan Defaults Head to Collections May 5: All You Need to Know/ Newslooks/ WASHINGTON/ J. Mansour/ Morning Edition/ Student loan collections resume May 5 after pandemic pause. 5.3 million borrowers in default may face wage garnishment. Borrowers have options like rehabilitation and income-based plans.

FILE – Education Secretary Linda McMahon does a television interview at the White House, April 16, 2025, in Washington. (AP Photo/Alex Brandon, File)

Student Loan Collections Resume: Quick Looks

Collections Resume May 5: The Education Department restarts efforts to collect on defaulted federal loans.
5.3 Million at Risk: Millions of borrowers could face wage garnishment and lost tax refunds.
Involuntary Collections Explained: Includes intercepting wages, tax refunds, and Social Security payments.
Default Timeline: Loans enter default after 270 days of missed payments.
Rehabilitation Programs Available: Make 9 consecutive payments to exit default.
Contact Your Loan Servicer: Borrowers are urged to reach out for repayment or forbearance options.
Forbearance Still an Option: Temporary relief for financial hardship, though interest continues to accrue.
More Info Available: Borrowers should consult the Education Department’s Default Resolution Group.

Student Loan Defaults Head to Collections May 5: All You Need to Know

Deep Look

NEW YORK – April 22, 2025 — Beginning May 5, the U.S. Department of Education will resume sending federal student loans in default to collections — marking the end of a pandemic-era pause that shielded over 5.3 million borrowers from aggressive recovery efforts.

The policy change affects borrowers who have not made a payment on their student loans for at least 270 days, the threshold at which loans are considered in default. According to officials, borrowers can expect notifications in the coming weeks about the collections process and their available options.

What Happens When a Loan Goes Into Default?

A loan is labeled delinquent after 90 days of missed payments, but it doesn’t hit default status until the borrower fails to pay for nine consecutive months. Once in default, the government can initiate involuntary collection, including:

Garnishing wages
Seizing tax refunds
Withholding portions of Social Security benefits

The collections will be carried out via the U.S. Treasury Department’s offset program, a tool the federal government uses to collect outstanding debts.

Options for Borrowers in Default

While the return of collections may sound daunting, borrowers do have options to resolve their default status. The Department of Education recommends visiting the Default Resolution Group website to:

Enroll in an income-driven repayment plan
Set up a monthly payment schedule
Apply for loan rehabilitation

Loan rehabilitation is a powerful tool to recover from default. Borrowers must make nine consecutive, on-time payments, after which their loan is removed from default status. However, this option can only be used once.

“Loan rehabilitation is a one-time lifeline that can restore your credit and remove default status,” said Betsy Mayotte, president of The Institute for Student Loan Advisors. “It’s not easy, but it’s effective.”

Can You Still Apply for Forbearance?

Forbearance is another potential route for borrowers under financial stress. It pauses your monthly payments for up to 12 months, but interest will continue to accrue during this time.

To apply for forbearance, borrowers must contact their loan servicer directly and explain their financial situation. It’s important to understand that while this relief provides short-term breathing room, it does not remove a loan from default status.