Student Loan Default: What to Know As Collections Restart
"Some 42.7 million borrowers owe more than $1.6 trillion in student debt as of May 2025, according to the U.S. Department of Education," U.S. News & World Report writes.
... "Student loan default means you have failed to make payments on your student loans for a specified period of time, which is outlined in the terms of your loan."
"'With federal loans, once a payment is missed, it is considered delinquent. Then if 270 days go by, that is default,' says Sarah Austin, a policy analyst at the National Association of Financial Aid Administrators."
... "But that is not all happening at once, says Austin. The first phase of the recently resumed collections will roll out via the Treasury Offset Program. If a borrower was scheduled to receive federal funds via a tax refund, Social Security or other federal payments, a portion of that money can be withheld through TOP and applied toward the student loan debt, Austin says."
"The next phase, which will begin in late summer 2025, will involve sending notices of wage garnishment to defaulted borrowers. This allows the collector to take funds directly from defaulted borrowers' paychecks until the debt is satisfied."
"With tax refunds, the government can redirect up to 100% of those funds to pay your lenders, but there are limits for other types of payments. For example, with wage garnishment, only up to 15% of your disposable income can be taken, says Austin."
... "Your lender has likely contacted you several times to attempt to secure payment if you have a student loan in default, says Austin."
"But some people may be unaware they are in default because their contact information has changed in the five years since collections notices went out."
"You can check your current loan status by logging into StudentAid.gov, the Department of Education's website for managing your student loans."
"Austin recommends making sure your contact information on StudentAid.gov is accurate and up to date. 'We don't want anyone to be missing those messages,' says Austin."
"If you have received an email warning you about a loan default, you should contact the department's Default Resolution Group, says Austin. Someone from that group can help you work out your options of how to get out of default or at least delay the Treasury Offset or wage garnishment."
... "In fact, some borrowers may even be approved for a $0 payment under income-driven repayment, says Austin. 'It's a way to make sure you're considered on-time and avoiding missed payments and the possibility of default,' says Austin."
"When considering a repayment plan change, your best bet is to use the loan simulator tool on StudentAid.gov. 'You can see what different repayment plans would do to your monthly payment, how long it will take to pay off, and how much interest you'll pay,' Austin says."
... "One drawback: You can only rehabilitate your loan one time, says Austin. If you go into default again after your rehabilitation is complete, you can't rehabilitate again."
NASFAA's "Notable Headlines" section highlights media coverage of financial aid to help members stay up to date with the latest news. Articles included under the notable headlines section are not written by NASFAA, but rather by external sources. Inclusion in Today's News does not imply endorsement of the material or guarantee the accuracy of information presented.
Publication Date: 5/6/2025
