Date: April 22, 2025
Author: Team Paisonomics
After a pause of over five years, the U.S. Department of Education has officially announced that collections on defaulted federal student loans will resume starting May 5, 2025. This move is set to impact millions of Americans who have fallen behind on their student loan repayments since the moratorium began in March 2020 due to the COVID-19 pandemic.
With over 5.3 million borrowers currently in default, this announcement signals a major shift in the student loan landscape — reigniting a heated public debate over student debt, collection practices, and the government’s long-term education financing strategy.
Why Are Collections Resuming Now?
According to the Department of Education, the pause was initially intended as a temporary relief measure during the pandemic. However, with the economic recovery underway and the legal roadblocks to loan forgiveness programs unresolved, the administration argues that resuming collections is a necessary step toward fiscal responsibility.
Secretary of Education Linda McMahon noted that, “We have a legal obligation to resume collection activity. Taxpayers cannot continue to indefinitely absorb the cost of unpaid loans.”
How Collections Will Work
The collections will restart under the Treasury Offset Program, which allows the federal government to recover debt by seizing federal tax refunds, Social Security payments, and other federal benefits.
Key details:
- Tax refunds for those in default can be intercepted starting in May.
- Wage garnishment is expected to begin from June 2025, after borrowers receive the mandatory 30-day notice.
- Social Security garnishments may follow, subject to age and income-based exemptions.
Borrowers with defaulted loans will be notified via mail and digital communications outlining their status, options, and deadlines to respond before involuntary collection actions begin.
The Current State of Student Loan Debt
Out of approximately 42.7 million federal student loan borrowers in the United States:
- Over 5.3 million are in default.
- Another 4 million are 91–180 days delinquent, indicating imminent risk of default.
- Less than 40% of all borrowers are currently making payments as scheduled.
The Department has also undergone internal restructuring recently, including layoffs at the Federal Student Aid (FSA) office, raising concerns about its capacity to handle the anticipated surge in borrower inquiries and rehabilitation applications.
What Borrowers Can Do
To prevent collections and protect their income, defaulted borrowers are being urged to take action immediately:
- Contact loan servicers to check current loan status.
- Apply for loan rehabilitation, which can remove default status after a series of on-time payments.
- Switch to Income-Driven Repayment (IDR) plans to reduce monthly payments based on income.
- Consolidate loans under certain conditions to regain good standing.
The Department is also offering expanded support tools, including AI chatbots, 24/7 helplines, and simplified online portals to assist with repayment planning.
Political Context and Backlash
This announcement comes amid ongoing legal disputes over the Biden administration’s earlier attempts at mass loan forgiveness, which were struck down by the U.S. Supreme Court. Advocacy groups have expressed disappointment over the resumed collections, arguing that they disproportionately affect low-income Americans, minorities, and first-generation college graduates.
Organizations like the Student Borrower Protection Center and NAACP have issued statements demanding a new round of targeted relief or at least an extension of protections for vulnerable groups.
The Road Ahead
The return of student loan collections is poised to spark renewed discussions in Congress regarding the long-term future of higher education funding. Critics argue that the U.S. needs a systemic overhaul, while proponents of the collections say it’s time to return to financial discipline.
As the May 5 deadline nears, millions of borrowers will be faced with critical decisions — and for many, the financial pressure is set to increase.
Disclaimer
This article is intended for informational purposes only. It does not constitute legal or financial advice. Readers are encouraged to consult with a certified financial advisor or loan counselor regarding their specific situation.
