"Student and parent borrowers—not taxpayers—must repay their student loans," reads a press release from the Education Department.
The U.S. Department of Education announced it will resume collections on defaulted federal student loans starting May 5, 2025, ending a five-year pause initiated during the COVID-19 pandemic. This move could impact over 5 million borrowers currently in default, exposing them to wage garnishment, tax refund seizures, and other collection actions.
What’s Changing?
The Department will reactivate the Treasury Offset Program, allowing the government to withhold federal payments—such as tax refunds and Social Security benefits—from borrowers in default. Additionally, administrative wage garnishment could begin later this summer, with up to 15% of a borrower's income withheld if no repayment arrangements are made.
Education Secretary Linda McMahon emphasized the importance of resuming collections to maintain the integrity of the federal student loan system, stating that these actions benefit both borrowers and taxpayers.
Options for Borrowers
Borrowers have several avenues to address defaulted loans:
- Loan Rehabilitation: Making nine consecutive, affordable monthly payments can remove the default status from a borrower's credit report.
- Loan Consolidation: Combining multiple loans into one can bring a loan out of default more quickly, though it may increase the total balance due to accrued interest.
- Income-Driven Repayment (IDR) Plans: Enrolling in plans like the Saving on a Valuable Education (SAVE) plan adjusts monthly payments based on income and family size, potentially making them more manageable.
Borrowers are encouraged to contact the Department's Default Resolution Group or visit studentaid.gov to explore these options.
Communication and Support
The Department plans to notify affected borrowers via email within the next two weeks, urging them to take action. To assist with the transition, the Department is expanding support services, including extended call center hours and an AI assistant to help borrowers identify suitable repayment options.
Broader Context
This policy shift aligns with the Trump administration's broader approach to federal student aid, which includes efforts to dismantle the Department of Education and transfer its responsibilities to other agencies.
With the federal student loan portfolio totaling $1.6 trillion and the national debt at $36 trillion, officials stress the need for borrower accountability and fiscal responsibility.
Borrowers are advised to act promptly to avoid the severe consequences of default, such as wage garnishment and loss of access to repayment options. Proactive engagement with available resources can help manage obligations and mitigate financial hardship.
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