As student loan collections resume, how did we get here and what's next?
By Lia Marsee
May 1, 2025 at 5:00 AM EDT
Starting May 5, the Department of Education will resume collecting defaulted student loans.
If you've got a student loan that's in default, the approaching end of the school year could bring bad news.
After a five-year break, the U.S Department of Education is set to resume collections starting May 5.
A borrower is considered to be in default if they fail to make a loan payment for at least 270 days.
Ahead of that deadline, the department has been notifying borrowers who are in default via email. They're advising them to make a payment or consider a payment plan, as well as directing them to a government website that shows them how to do so.
People can check their student loan status at StudentAid.gov, the Department of Education's website.
ALSO READ: What to know as the government begins collections on defaulted student debt
But on May 5, borrowers still in default will be referred to an involuntary collections program run by the U.S. Treasury Department.
Michael Snipes is an economics professor at the University of South Florida Sarasota-Manatee campus.
He said restarting loan collections could impact people's college plans.
"So it’s going to make it a lot harder for people to graduate, to get ahead, to get degrees," Snipes said. "It could deter people from going to school in the first place."
How did we get here?
According to a release from the U.S. Department of Education, as of late April, 42.7 million borrowers owe more than $1.6 trillion in student debt.
In addition, more than five million borrowers have not made a monthly payment in over 360 days, while four million are in what's called late-stage delinquency, making no payments for between 91 and 180 days.
Secretary of Education Linda McMahon believes this is a direct effect of the Biden Administration's decisions regarding student debt.
"American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies,” McMahon said.
During the COVID-19 pandemic, the first Trump administration paused collection on student loans for at least 60 days.
President Joe Biden extended the pause multiple times until repayments began in October of 2023.
However, even when repayments resumed, collections did not — until now.
"Student and parent borrowers – not taxpayers – must repay their student loans. There will not be any mass loan forgiveness," the Department of Education said.
But the resumption of loan collections comes as the White House moves to disband the U.S. Department of Education.
Trump has indicated that he'd like the Small Business Administration to take over the student loan portfolio.
But the SBA recently reduced its workforce by 43%.
Snipes said this could potentially lead to delays resolving loan conflicts.
"So if we move it to a smaller department, it’s just going to be less efficient," he said. "There’s just going to be less people there to take care of things."
Snipes said the best-case scenario is that student debt collection stays with the Department of Education — or at least remains at the federal level, as opposed to going to private industry.
How will someone in default be affected?
Starting May 5, the Treasury Department’s involuntary collections program will begin withholding government payments like Social Security benefits, tax refunds, and other benefits.
Then, after a 30-day notice, the department will begin garnishing wages — up to 15% of a borrower's disposable income — of those still in default.
What's next?
Snipes said while everyone may not be in the best position to do this, the best way to get out of loan default is to pay it off in full, or at least as much as you can.
Barring that, another option is loan consolidation. Federal Student Aid, an office of the Treasury Department, says this will allow for lower payments — but the fact that you were in default will still show up on your credit report.
If no other options are available, there's always rehabilitation. However, this can only be done once.
This means the borrower agrees to make nine payments based on their income and determined by the loan holder. They then have to make the nine payments during a 10-month period.
Once these payments are complete, the loan is no longer in default and is taken off the borrower's credit report.
Information from the Associated Press was used in this report.
After a five-year break, the U.S Department of Education is set to resume collections starting May 5.
A borrower is considered to be in default if they fail to make a loan payment for at least 270 days.
Ahead of that deadline, the department has been notifying borrowers who are in default via email. They're advising them to make a payment or consider a payment plan, as well as directing them to a government website that shows them how to do so.
People can check their student loan status at StudentAid.gov, the Department of Education's website.
ALSO READ: What to know as the government begins collections on defaulted student debt
But on May 5, borrowers still in default will be referred to an involuntary collections program run by the U.S. Treasury Department.
Michael Snipes is an economics professor at the University of South Florida Sarasota-Manatee campus.
He said restarting loan collections could impact people's college plans.
"So it’s going to make it a lot harder for people to graduate, to get ahead, to get degrees," Snipes said. "It could deter people from going to school in the first place."
How did we get here?
According to a release from the U.S. Department of Education, as of late April, 42.7 million borrowers owe more than $1.6 trillion in student debt.
In addition, more than five million borrowers have not made a monthly payment in over 360 days, while four million are in what's called late-stage delinquency, making no payments for between 91 and 180 days.
Secretary of Education Linda McMahon believes this is a direct effect of the Biden Administration's decisions regarding student debt.
"American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies,” McMahon said.
During the COVID-19 pandemic, the first Trump administration paused collection on student loans for at least 60 days.
President Joe Biden extended the pause multiple times until repayments began in October of 2023.
However, even when repayments resumed, collections did not — until now.
"Student and parent borrowers – not taxpayers – must repay their student loans. There will not be any mass loan forgiveness," the Department of Education said.
But the resumption of loan collections comes as the White House moves to disband the U.S. Department of Education.
Trump has indicated that he'd like the Small Business Administration to take over the student loan portfolio.
But the SBA recently reduced its workforce by 43%.
Snipes said this could potentially lead to delays resolving loan conflicts.
"So if we move it to a smaller department, it’s just going to be less efficient," he said. "There’s just going to be less people there to take care of things."
Snipes said the best-case scenario is that student debt collection stays with the Department of Education — or at least remains at the federal level, as opposed to going to private industry.
How will someone in default be affected?
Starting May 5, the Treasury Department’s involuntary collections program will begin withholding government payments like Social Security benefits, tax refunds, and other benefits.
Then, after a 30-day notice, the department will begin garnishing wages — up to 15% of a borrower's disposable income — of those still in default.
What's next?
Snipes said while everyone may not be in the best position to do this, the best way to get out of loan default is to pay it off in full, or at least as much as you can.
Barring that, another option is loan consolidation. Federal Student Aid, an office of the Treasury Department, says this will allow for lower payments — but the fact that you were in default will still show up on your credit report.
If no other options are available, there's always rehabilitation. However, this can only be done once.
This means the borrower agrees to make nine payments based on their income and determined by the loan holder. They then have to make the nine payments during a 10-month period.
Once these payments are complete, the loan is no longer in default and is taken off the borrower's credit report.
Information from the Associated Press was used in this report.