On May 5, the Department of Education resumed collections on defaulted student loans, ending a five-year pause that began at the onset of the COVID-19 pandemic.
Since March 2020, payments and interest accumulation on most federal student loans have been paused, providing relief to millions of borrowers and their families facing economic hardship. The Biden administration extended this pause as the U.S. continued to recover from the pandemic and established new repayment programs to help student borrowers. With the last of these Biden-era programs expiring on January 1, 2025, the Trump administration has now directed the Departments of Education and Treasury to resume collections from delinquent and defaulted borrowers.
The Office of Federal Student Aid announced that they would contact borrowers in default, urging them to prepare for either making a monthly payment, enrolling in an income-driven repayment plan, or entering loan rehabilitation. The Department of Education also announced that as early as June 2025, the agency will begin collecting on the debt by withholding payments through the Treasury Department’s Offset program, which is how the federal government can withhold tax refunds and federal benefits such as Social Security to pay for debt. The agency also announced their intention to start garnishing wages for student loan borrowers in default: directing private employers to withhold up to 15% of an employee’s disposable pay to collect on student loan debt.
Over 5 million student borrowers are currently in default—and that number is expected to grow as the Trump administration moves to dismantle several programs designed to reduce the burden of student debt and provide long-term relief, including repealing and replacing the Biden administration’s Saving on a Valuable Education (SAVE) plan. SAVE is an income-driven repayment program that provides for loan forgiveness after 20 or 25 years in repayment, would have cut monthly payments in half for certain borrowers, protected borrowers from runaway balances, and expedited debt relief.
House Republicans are also proposing massive cuts to federal student aid in the federal reconciliation bill to pay for the Trump administration’s tax cuts agenda, including capping unsubsidized and Parent PLUS loans and eliminating subsidized loans for undergraduates and Grad PLUS loans.
Impact: There are approximately 43 million borrowers with more than $1.6 trillion owed in total student loans, and over 5 million are in default (not currently making payments on the loan). As collections begin, the Federal Reserve Bank of New York estimates that more than nine million student loan borrowers will face significant drops in credit score once delinquencies appear on credit reports in the first half of 2025 with some borrowers seeing a reduction in credit scores by more than 150 points associated with new student loan delinquency. The resumption of student loan collections, combined with these policy shifts, imposes further financial strain on borrowers—many of whom are especially vulnerable to economic shocks, particularly borrowers of color, women, and those earning low wages.