What to know as student loan collections resume

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.

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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.