Student Loan Collections Resume: What Borrowers in Default Need to Know

After a five-year hiatus, Federal Student Loan collections are set to resume on May 5, 2025.

This change impacts millions of borrowers whose loans have defaulted, reintroducing government recovery efforts such as wage garnishment and tax refund seizures.

It’s getting more expensive to live—but you may qualify for financial relief!
 

Understanding Default and Its Implications

A loan enters default after 270 days of missed payments. Once in default, the government can employ involuntary collection methods without a court order.

These include:

• Wage Garnishment: Up to 15% of disposable pay can be withheld.

• Tax Refund Seizure: Federal and state tax refunds may be intercepted.

• Social Security Offsets: Benefits can be reduced to repay the debt.

Defaulting also adversely affects credit scores, potentially hindering future financial endeavors like securing mortgages or car loans. To understand better, read this guide.

 

Steps to Address Defaulted Loans

Borrowers have options to rectify their default status:

• Loan Rehabilitation: Make nine consecutive, on-time monthly payments to remove the default from your credit history.

• Loan Consolidation: Combine multiple loans into one, potentially qualifying for income-driven repayment plans.

The Department of Education's Default Resolution Group will be reaching out to affected borrowers via email, providing guidance on resolving their loans and avoiding further penalties.

With collections resuming, it's crucial for borrowers to act promptly.

Engaging with available programs can mitigate financial repercussions and set a path toward financial stability.

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