After a five-year pause that began as part of Covid relief efforts, student loan collections resumed on May 5, 2025. For borrowers, this means that if their loans are in default — for federal student loans, that occurs after 270 days or more of non-payment — they could face seizure of their wages as well as of their tax refunds and federal benefits.
The restart comes as part of the Trump administration's "focus on recouping payments from defaulted student loan borrowers" and reversal of Biden-era policies, said CNBC. It is estimated that "more than 5 million borrowers are currently in default," and the Trump administration has projected that total could "swell to roughly 10 million borrowers within a few months," given the number of people currently behind on their loan payments.
What happens if your loans go to collections?
When student loans go to collections, the Department of Education takes action to recoup the amount owed. Under the Trump administration, this will occur "through a Treasury Department program that withholds payments through tax refunds, wages and government benefits," including Social Security benefits and disability benefits, said NBC News. That money is then applied toward the outstanding student loan debt.
The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
Beyond facing the loss of wages and any federal payments, borrowers will also see impacts to their credit score, perhaps by "as much as 129 points," said CNBC, citing VantageScore. Lower credit "can make it more difficult to qualify for an apartment rental or impossible to obtain new loans," said The New York Times.
How do you know if you will face student loan collections?
Prior to facing collections efforts, your loans must have entered default, which happens for federal loans after you have not made payments for 270 days or more. If your loans are in default, you will get an email from the Federal Student Aid office alerting you and encouraging you to contact the Default Resolution Group to resolve the situation.
You also can find out if your loans are in default by visiting the Federal Student Aid website or getting in touch with your loan servicer.
How can you get out of default and avoid collections?
The Department of Education has a Default Resolution Group that borrowers can work with to determine a path forward. Paying off the loan balance in full is one way out, but that is not feasible for many people. Instead, borrowers already in default may consider:
Loan consolidation: With this option, existing loans are combined into and replaced by a new loan, streamlining monthly payments. Borrowers in default must meet certain criteria to qualify, and the default will remain on their credit history.
Loan rehabilitation: A one-time option for borrowers in default is to rehabilitate their loans by voluntarily making nine consecutive payments in an amount determined by the loan servicer within a 10-month period. After that, "the default notice will be removed from your credit report," said CNN.
-
5 health-conscious cartoons about anti-vaccine rhetoricCartoons Artists take on RFK Jr's militant methods, the viral lottery, and more
-
September 13 editorial cartoonsCartoons Saturday's political cartoons include court-approved racial profiling and America's moral compass
-
Giorgio Armani obituary: designer revolutionised the business of fashionIn the Spotlight ‘King Giorgio’ came from humble beginnings to become a titan of the fashion industry and redefine 20th century clothing
-
The pros and cons of buying a new-build housethe explainer Repairs and maintenance will be minimal on a brand new build — but moving into an existing home can be easier upfront
-
What's the best time of year to buy a house?The Explainer There are pros and cons to each season
-
How much does it cost to move? Here's how to budget and save.the explainer Factors like move distance and the weight of your furnishings can affect the total cost — but there are several ways to economize
-
When does a personal loan make sense?the explainer Personal loans tend to be more flexible and versatile than home, auto or student loans
-
Should you downsize for retirement? Here's what to consider.The Explainer Moving to a smaller place may seem easier, but there are also some real benefits to staying put
-
What to do if you want to move but don't want to give up your low mortgage ratethe explainer 30-year mortgage rates are currently averaging 7% — and homeowners who secured rates closer to 3% during the pandemic are reluctant to sell their homes
-
Is hands-off investing the way to go?The Explainer In many cases, your money might be better off left alone
-
What to know before turning to AI for financial advicethe explainer It can help you crunch the numbers — but it might also pocket your data
