US Government Resuming Collections on Defaulted Loans Next Month

The US Education Department is poised to resume collections on over 5 million defaulted student loans after a five-year pause.

Quick Takes

Federal student loan collections will resume May 5, 2025, after being paused since March 2020.
The Treasury Offset Program will intercept tax refunds and government benefits from defaulted borrowers.
Over 5 million borrowers are currently in default, with projections this could rise to 10 million.
Education Secretary Linda McMahon criticized the Biden administration, accusing it of misleading borrowers.
Wage garnishment for defaulted borrowers will begin later this summer.

Five-Year Collection Pause Ends for Defaulted Borrowers

The US Department of Education has announced that beginning May 5, it will restart “involuntary” collections on defaulted federal student loans. This marks the end of a pause that began in March 2020 during the Trump administration. Federal student loans are considered in default when borrowers miss payments for at least 270 days. The resumption of collections comes after multiple extensions of the payment pause under the Biden administration, which ended last year for borrowers in good standing.

With approximately 5.3 million borrowers currently in default and another 4 million in “late-stage delinquency,” the impact of this policy shift will be widespread. The Department of Education has stated that affected borrowers will receive notices within two weeks explaining their situation and options. The collections will initially focus on intercepting federal payments through the Treasury Offset Program before expanding to wage garnishment later this summer.

Education Department to resume 'involuntary collections' of defaulted student loans https://t.co/zEOg1SnefQ

— CNBC (@CNBC) April 21, 2025

How Collections Will Work

The Treasury Offset Program serves as the primary mechanism for collecting defaulted student loans. This program allows the government to intercept various federal payments to borrowers in default, including tax refunds, Social Security benefits, and federal salaries. Defaulted borrowers can expect to see these offsets begin almost immediately after the May 5 restart date. Later in the summer, the Education Department plans to authorize federal wage garnishment, allowing them to deduct payments directly from defaulted borrowers’ paychecks.

Guaranty agencies will also be authorized to begin involuntary collections activities on loans they manage. The Department of Education recommends that borrowers in default contact the Default Resolution Group immediately to discuss their options, which include making monthly payments, enrolling in income-driven repayment plans, or signing up for loan rehabilitation programs to restore their loans to good standing.

Political Controversy Surrounds Student Loan Pause

The extended pause of student loan collections has not been without political controversy. Education Secretary Linda McMahon has been openly critical of the Biden administration’s handling of student loan policies, arguing they created confusion for borrowers and made false promises about loan forgiveness. McMahon’s comments reflect the current administration’s different approach to student debt than that of the previous administration.

The Department of Education’s McMahon has stated that “The Biden-Harris administration refused to lift the collections pause and kept borrowers in a confusing limbo,” and added that “the executive branch does not have the constitutional authority to wipe debt away.” This position reflects the Supreme Court’s 2023 ruling that struck down President Joe Biden’s student loan forgiveness plan as unconstitutional without congressional approval. The department now appears focused on returning to normal loan collection operations.

Options for Defaulted Borrowers

Higher education expert Mark Kantrowitz has emphasized the importance of education for borrowers, particularly those who graduated during the 2020 health emergency and have no experience with the loan repayment process. Defaulted borrowers have several options to address their situation before facing involuntary collections. These include contacting the Default Resolution Group, making arrangements to begin monthly payments, or signing up for loan rehabilitation—a program that allows borrowers to make nine on-time payments over ten months to restore their loans to good standing.

Another option is enrolling in an income-driven repayment plan, which can make payments more affordable based on income and family size. Taking action before collections begin is crucial, as involuntary collection methods can be more financially disruptive than voluntary payment arrangements. With projections suggesting the number of defaulted borrowers could potentially double to 10 million, many financial experts are urging at-risk borrowers to be proactive in addressing their loan status.