After a five-year reprieve, the Office of Federal Student Aid (FSA) will restart forced collections on federal student loans in default. Starting as early as May 5th, 2025, the 5.3 million borrowers who went into default during the pandemic could begin to see their credit scores plunge, tax refunds (or other federal payments) withheld and, eventually, garnished wages.
What is a defaulted loan?
The first day after you miss a student loan payment, your loan becomes delinquent. If you are delinquent for 90 days or more, your loan servicer will report the delinquency to the national credit bureaus. Typically, a borrower is considered in default when they fail to make a loan payment for at least 270 days. Both delinquency and defaulting on your loan can negatively impact your credit score. A report can stay on your credit report for seven years and continue to impact your creditworthiness even after the loan is paid off.
At present, more than 5 million borrowers have not made a monthly payment in over 360 days and sit in default. Another 4 million are in "late-stage delinquency" (91-180 days) and 2.9 million borrowers are 61-90 days late on their loan payments.
All borrowers in default will receive email communications from the FSAurging them to contact the Default Resolution Group. This unit can help borrowers navigate making a monthly payment, enrolling in an income-driven repayment plan, or signing up for loan rehabilitation.
Involuntary Collections for Defaulted Borrowers
Starting May 5th, FSA can start taking funds out of borrowers' tax refunds, Social Security Benefits, and eventually, wages. The garnishment of wages—seizing up to 15% of borrower's disposable income— will come "later this summer."
You can check your loan status by logging into StudentAid.gov. The online dashboard shows how much debt you owe (and to whom), your monthly payment amount and, if you're in default, a warning message that says so. Ensure your email and physical address are up to date to ensure you receive all notifications.
If you are getting bills from a student loan servicer, that means you're not in default and, therefore, unlikely to face forced collections over the summer if you pay your bill. Loan services will send multiple notices—by email, mail, or phone—to borrowers who are delinquent and increasingly at risk of going into default.
What are my options if I'm in default?
There are three primary ways to get out of default: repay the loans in full, loan consolidation, and rehabilitation.
- Repay in Full: This is the quickest, but hardest, way to get out of default.
- Loan Consolidation: This option involves paying off your defaulted loan with new repayment terms. While it doesn't remove the fact that you were once in default from your credit report, it will make you eligible for lower payment options. It is faster also than rehabilitation.
- Loan Rehabilitation: A borrower must make multiple—typically nine—consecutive on-time payments of an amount that is usually based on their income. Once those are paid, the loan is taken out of default and the default line of credit is removed from a person's credit report.
If you are interested in pursuing a new payment plan, you can use the loan calculator on the federal student aid website to get a rough estimate of what monthly payment and interest choices would look like under different repayment plans. From there, you can determine the best choice for you.