In a move that could shake the financial stability of millions, the U.S. Department of Education announced on April 21, 2025, that it will resume collecting federal student loans in default starting May 5, ending a five-year pause prompted by the COVID-19 pandemic. With over 5 million borrowers currently in default and a staggering $1.8 trillion in total student loan debt, this decision signals a looming crisis for American borrowers and the economy at large.
A Growing Problem
The numbers are alarming: 42.7 million Americans owe student loans, and 5.3 million are in default, meaning they haven’t made payments for at least 270 days. According to the Education Department, nearly a quarter of all federal student loan borrowers could soon face default. Only 38% of borrowers are current on their payments, while others are delinquent, in forbearance, deferment, or a grace period. This paints a troubling picture of a system under strain, with millions struggling to keep up.
The New York Fed recently reported a record-breaking share of student loans marked delinquent, highlighting the growing stress on borrowers. For many, defaulting on loans isn’t just a financial hiccup—it can lead to severe consequences like damaged credit scores, revoked driver’s licenses in some states, and even the loss of future student aid.
What’s Changing?
Starting May 5, the Education Department will restart the Treasury Offset Program, which allows the government to garnish federal and state payments, such as tax refunds or Social Security benefits, from borrowers in default. Borrowers will receive a 30-day notice before wage garnishment begins this summer, a process where employers are ordered to withhold a portion of an employee’s income to repay the debt. This marks the first time since March 2020 that such collections will resume, ending a leniency period that offered relief during the pandemic.
The decision comes amid significant changes at the Education Department. President Donald Trump recently signed an executive order to dismantle the department, with the Small Business Administration set to take over the massive student loan portfolio. Additionally, the termination of numerous Federal Student Aid employees has raised concerns about the department’s ability to support borrowers during this transition. Former Under Secretary of Education James Kvaal warned that these cuts could leave borrowers without the resources needed to navigate repayment options or apply for loan forgiveness.
The Human Cost
For the 5 million borrowers in default, the stakes are high. Defaulting on a student loan can have devastating effects. “Defaults can be tragic,” Kvaal told ABC News, noting that they can harm credit scores and limit access to future aid. The Student Borrower Protection Center, an advocacy group, criticized the move, with Executive Director Mike Pierce calling it “cruel” and “unnecessary.” Pierce argued that the Trump administration’s decision to block access to affordable repayment plans, like the Biden administration’s SAVE plan, is pushing borrowers into a “government debt collection machine” with no clear path out.
The SAVE plan, which capped monthly payments at 5% of a borrower’s income and offered forgiveness after 10 years, was halted following a court order. The Education Department has also removed applications for all income-driven repayment plans from its website, leaving borrowers with limited options if they can’t afford standard rates. While the department promised a new “enhanced” repayment process that eliminates annual income recertification, details remain scarce.
A Controversial Stance
Education Secretary Linda McMahon defended the resumption of collections, arguing that it protects taxpayers from bearing the cost of “irresponsible student loan policies.” In a statement, she accused the Biden administration of misleading borrowers about its authority to forgive debt, referring to Biden’s failed plan for widespread loan forgiveness. “American taxpayers will no longer be forced to serve as collateral,” McMahon said, emphasizing that the department will work with the Treasury to manage the loanきたい program “responsibly.”
However, critics argue that resuming collections without affordable repayment options is a recipe for disaster. With millions already struggling, the added pressure of wage garnishment and benefit offsets could deepen financial hardship for working families.
What Borrowers Can Do
The Education Department is urging defaulted borrowers to act quickly by contacting the Default Resolution Group to explore options like making monthly payments, enrolling in an income-driven repayment plan, or pursuing loan rehabilitation. A comprehensive outreach campaign is planned to help borrowers understand how to return to repayment or exit default. Yet, with limited staff and restricted access to repayment programs, many borrowers may find it challenging to navigate the system.
Looking Ahead
As the May 5 deadline approaches, the resumption of student loan collections marks a critical moment for millions of Americans. The combination of a massive debt burden, limited repayment options, and an uncertain future for the Education Department raises serious questions about the sustainability of the student loan system. For borrowers, the message is clear: act now or face the consequences of a system that’s ready to collect—no matter the cost.
