[UNITED STATES]The U.S. Department of Education announced that it will resume involuntary collections on defaulted federal student loans starting May 5, 2025, ending a pause that began in March 2020 due to the COVID-19 pandemic.
Approximately 5.3 million borrowers are currently in default on their federal student loans. With the resumption of collections, the Department of Education will reinstate measures such as wage garnishment, tax refund offsets, and reductions in Social Security benefits for those in default. This move follows the expiration of temporary relief programs like the Fresh Start initiative, which had provided a pathway for borrowers to return to good standing without facing collections.
Implications for Borrowers
The resumption of collections is expected to affect a significant number of borrowers. Approximately 4 million borrowers are currently in late-stage delinquency, and many are at risk of defaulting if they do not take action. Experts emphasize the importance of early intervention to avoid severe consequences such as wage garnishment and loss of access to income-driven repayment plans.
Options for Borrowers in Default
Borrowers in default have several options to avoid involuntary collections:
Loan Rehabilitation: This process involves making nine consecutive, on-time monthly payments within a ten-month period. Successful completion removes the default status from the borrower's credit history and may prevent further collection actions.
Loan Consolidation: By consolidating defaulted loans into a new Direct Consolidation Loan, borrowers can remove the default status. However, this option retains a record of the default on the borrower's credit report.
Both options require borrowers to act promptly to avoid the initiation of collections.
Department's Commitment to Borrower Protection
The Department of Education has outlined stronger protections for borrowers in default, including a cap on the collection of Social Security benefits to better align with amounts owed in an income-based repayment plan. This policy aims to protect borrowers who rely on Social Security from being pushed into poverty due to student loan debt.
The resumption of involuntary collections on defaulted student loans marks a significant shift in federal student loan policy. Borrowers are encouraged to explore available options, such as loan rehabilitation or consolidation, to avoid the adverse consequences associated with default. For more information and to begin the process, borrowers can visit studentaid.gov.
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