Federal student loan defaulters face renewed collection efforts starting May 5, as the Education Department ends pandemic-era protections that shielded millions from wage garnishment and tax refund seizures.
Quick Takes
- The Department of Education will resume collections on defaulted student loans May 5, affecting approximately 5.3 million borrowers currently in default.
- Collections actions will include withholding tax refunds and Social Security benefits, with wage garnishment set to follow later this summer.
- Only 38% of borrowers are current on their student loans, with the Department warning nearly 10 million more could soon default.
- Borrowers can avoid collection by entering loan rehabilitation, which requires nine consecutive on-time payments.
- Education Secretary Linda McMahon stated “American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies.”
Default Collections End Three-Year Pause
After a 5-year pause during the COVID-19 pandemic, the Department of Education is set to restart collection activities on defaulted federal student loans beginning May 5. The resumption affects approximately 5.3 million borrowers currently in default on their federal student loans. Since March 2020, these borrowers have been protected from aggressive collection tactics including wage garnishment and the withholding of tax refunds. The department will first begin intercepting government payments like tax refunds and Social Security benefits through the Treasury Department’s offset program before implementing wage garnishment later this summer.
Officials from the Education Department have expressed concern about the health of the federal student loan portfolio, with only 38% of borrowers currently making their payments. Department warnings indicate that nearly 10 million additional borrowers could soon enter default status, representing almost a quarter of the entire federal student loan portfolio. The Biden administration had previously offered a one-year grace period that began September 2023, during which defaulted borrowers were spared the worst financial consequences, but that protection ended in October 2024.
Currently, roughly 5.3 million borrowers are in default on their federal student loans.
https://t.co/lClHSbMAok— WCPO 9 (@WCPO) April 22, 2025
McMahon Targets Higher Education Costs
Education Secretary Linda McMahon has taken a strong stance on the issue, criticizing the previous administration’s approach and shifting focus to what she characterizes as the root causes of the student debt crisis. McMahon has particularly targeted colleges and universities for their role in driving up education costs while receiving federal loan subsidies. The Trump administration has signaled it will work with Congress on measures to make loan payments more affordable and reduce overall college costs, rather than pursuing mass loan forgiveness programs.
“Colleges and universities call themselves nonprofits, but for years they have profited massively off the federal subsidy of loans, hiking tuition and piling up multibillion-dollar endowments while students graduate six figures in the red,” said McMahon.
According to the department, the approach represents a return to responsible management of the federal student loan program. A senior department official stated that “the federal student loan portfolio is headed toward a fiscal cliff if we don’t start repayment and collections.” McMahon has explicitly confirmed there will be no mass loan forgiveness, a stark contrast to the previous administration’s efforts in this area.
Critics Warn of Financial Harm
Student loan forgiveness advocates have strongly criticized the decision to resume collections. Mike Pierce, executive director of the Student Borrower Protection Center, called the move “cruel, unnecessary and will further fan the flames of economic chaos for working families across this country.” Critics point to research showing that borrowers typically default due to prioritizing other essential expenses or an inability to afford payments, not unwillingness to pay. The data shows that unemployed borrowers and those who did not complete their education are more likely to default.
“Things are really difficult to understand right now. Things are changing every day,” said Kristin McGuire, executive director of Young Invincibles, a group that focuses on economic security for young adults. “We can’t assume that people are in default because they don’t want to pay their loans. People are in default because they can’t pay their loans and because they don’t know how to pay their loans.”
Options for Defaulted Borrowers
The Education Department has announced a “robust communication strategy” to inform borrowers of their options, including income-driven repayment plans that can significantly lower monthly payments. For those already in default, loan rehabilitation offers a path to avoid wage garnishment by making nine consecutive on-time payments based on income. This opportunity is particularly important as borrowers generally get only one chance at rehabilitation. The department has also committed to clearing a backlog of 1.8 million pending applications for income-driven repayment plans and will extend call center hours for borrower support.
However, concerns persist about the department’s staffing and resources to effectively restart collections while simultaneously supporting struggling borrowers. Recent layoffs at the Federal Student Aid office have made it difficult for borrowers to access assistance, and income-driven repayment programs have faced disruptions, causing additional confusion. With less than two weeks before collections resume, borrowers are advised to contact their loan servicers immediately to understand their options and take necessary actions to protect their finances.
