Federal government resumes student loan collections after pandemic pause

Starting this week, the federal government is once again collecting on defaulted student loans — a move that ends a years-long pandemic-era pause and could impact millions of borrowers nationwide.

Collections resumed Monday under the direction of the Trump administration, which says the U.S. Department of Education will begin recovering funds through the Treasury Offset Program — an existing system that withholds payments from tax refunds, wages, and even federal benefits like Social Security.

The Education Department hasn’t collected on defaulted loans since March 2020. But now, with the pause officially lifted, borrowers who’ve fallen behind could face serious financial consequences.

“American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies,” said Education Secretary Linda McMahon .

Student debt in the U.S. has ballooned to $1.6 trillion in the last five years, and data from the Education Department shows only about a third of the nearly 43 million borrowers are making consistent payments. About 5 million people are considered in default or delinquent on their loan payments.

While federal officials argue the restart in collections is necessary to protect taxpayers, student debt advocates say the timing couldn’t be worse as borrowers struggle with high inflation, rising rent, and a volatile job market.

“We’re in the worst student loan landscape that we’ve ever been before,” said Sabrina Calazans, executive director of the Student Debt Crisis Center, . “The plans and proposals being put forth by the Trump administration are going to harm millions of individuals and families. It’s going to create a financial catastrophe where folks will not be able to meet their basic needs.”

WHAT BORROWERS NEED TO KNOW

Borrowers in default should have received an email from the Office of Federal Student Aid outlining next steps. The email includes instructions to contact the to help with the following:

• Make a monthly payment
• Enroll in an income-based repayment plan
• Begin — a process that can remove a loan from default after a series of on-time payments
•  

Karen Krause, Executive Director of Financial Aid at the University of Texas at Arlington, says communication is key.

“Stay in touch with your loan servicer, figure out who it is and start making whatever you can make in payments. They need to talk with their loan servicer to see if perhaps they qualify for a loan deferment or a loan forbearance for some period of time and to make those arrangements with their loan servicer,” Krause said. “If you have to call your loan servicer and say, ‘What can we work out here? I can't do this this month.’ At least they know you're trying and they, you know, they'll work with you to some extent.”

Krause added that ignoring the notice of payments resuming will only get borrowers in trouble.

“Ignoring it is not a good idea. That will only get you in trouble because one of the things that they're doing is putting teeth into this change by starting these loan collections – they will hold IRS tax refunds and they will garnish wages,” she said. “They're going to get their money the easy way or the hard way.”

Under the Treasury Offset Program, the government can claim entire federal tax refunds and up to 15% of a borrower’s disposable income. Officials say wage garnishment notices will begin rolling out later this summer.

Credit scores may also take a hit for those who miss payments.

This new chapter marks a major shift from the Biden administration’s student loan relief efforts. Before leaving office in January, President Biden announced more than 5 million borrowers had received student loan forgiveness — including many who were defrauded by for-profit institutions, public service workers, and individuals with permanent disabilities.

“Since Day One of my Administration, I promised to ensure higher education is a ticket to the middle class, not a barrier to opportunity,” Biden said in a statement at the time.

However, in its latest policy update, Trump’s Education Department made it clear that “there will not be any mass loan forgiveness” going forward.

McMahon argued that Biden overstepped his authority, placing the financial burden on taxpayers and creating uncertainty for borrowers.

“The executive branch does not have the constitutional authority to wipe debt away, nor do the loan balances simply disappear,” she wrote in an April op-ed for The Wall Street Journal. “If borrowers don’t pay their debts to the government, taxpayers do.”

Biden’s 2023 loan forgiveness plan — which would have canceled up to $20,000 in debt per eligible borrower — was ultimately blocked by the U.S. Supreme Court.

For now, borrowers in default are urged to take action quickly to avoid further penalties.

MORE CHANGES FOR NEW BORROWERS

And while the ending payment pause is already impacting millions, – ones that could reshape how student loans work going forward.

House Republicans have introduced what they’re calling the . It would overhaul how Americans repay their federal student loans.

Under the GOP plan, borrowers would have just two repayment options, instead of the current dozen or so. They could either make fixed payments over 10 to 25 years, or enroll in a new income-driven option called the Repayment Assistance Plan, or RAP.

Monthly payments would be tied to a borrower’s income. That amount would start at 1% and rise to as much as 10%, depending on how much they earn. But there’s a catch: No loan forgiveness for 30 years, and new borrowers would lose key protections, like having a portion of their income excluded from repayment calculations.

Still, the plan offers a few benefits. It waives interest on some payments, and parents would get a $50 discount on their monthly payment for each child.

These GOP-backed changes would only apply to loans made after July 1, 2026. Existing borrowers would still have access to most current repayment options.

At the same time, another bill advancing through Congress could change who qualifies for aid in the first place. It would raise the credit hour requirement for Pell Grants from 12 to 15 hours and eliminate subsidized loans for undergraduates and Grad PLUS loans for graduate students.

“That’s a fairly significant change to enrollment patterns,” said Krause. “We have a lot of students who get 30 hours in a year, but they do 12 hours in the fall, 12 hours in the spring, and 6 hours in the summer. This would give them less federal Pell Grant funds during the fall and spring if they were not in 15 hours.

None of those proposals are law yet, but borrowers shouldn’t wait to prepare.

Step one is checking your loan servicer, your total balance, and making sure your contact info is correct. You can do all of that at studentaid.gov.

Experts also say it’s time to make your voice heard.

“Students are voters. Parents are voters,” Krause said. “The best way to combat something that could significantly harm students is to advocate for what they want to see.”