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After a five-year pause that began during the COVID-19 pandemic, federal student loan collections are officially set to resume on May 5, 2025. This decision affects millions of borrowers whose loans have fallen into default, triggering the return of aggressive government debt recovery efforts like wage garnishment and tax refund seizures.
If you're behind on payments or officially in default, it's critical to understand what this means for your financial future and what options you have to avoid further penalties.
More than 5 million borrowers are currently classified as in default, which the federal government defines as failing to make a payment on a federal student loan for more than 270 days. In addition, another 4 million borrowers are considered delinquent-missing payments for 91 to 180 days-and are at serious risk of defaulting if they don't act soon.
What default means and how the government collects on unpaid student debt
If you're in default, your loan is no longer in good standing and has been referred for collections. That gives the federal government the power to use involuntary collection tools to recover the debt - without needing a court order.
Defaulting can also seriously harm your credit. Missed payments and collections activity are reported to credit bureaus, often causing long-term damage to your credit score and reducing your ability to qualify for mortgages, car loans, or even rental housing.
What steps can you take to fix a defaulted federal student loan?
If you're one of the millions of borrowers impacted, you still have time to take action before garnishments begin later this summer. The Department of Education's Default Resolution Group will be reaching out to affected borrowers via email, providing guidance on how to resolve their loans and avoid further penalties.
One of the most effective paths forward is loan rehabilitation. This process involves making nine on-time, affordable monthly payments within 10 consecutive months. Upon completion, the default status is removed from your credit history, and collections efforts stop.
"[Successful] rehabilitation can also remove the default from your credit report," according to StudentAid.gov.
Another route is loan consolidation, where you combine your defaulted loan into a new Direct Consolidation Loan. You must agree to repay the new loan through an income-driven repayment plan, which adjusts your monthly payments based on your income and family size.