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After a prolonged pause during the pandemic, the U.S. government has resumed student loan debt collections - and for millions of borrowers, the consequences may be more severe than anticipated.
With default and delinquency rates on the rise, reduced access to federal , and policy changes causing widespread confusion, borrowers are entering one of the most turbulent repayment periods in recent memory.
According to the Department of Education, over 5 million borrowers are already in default, while more than 20% of student loan holders are behind on payments by 90 days or more. These figures indicate a troubling landscape as collections ramp up again in May 2025.
Financial penalties and policy whiplash
The return of collections brings back a host of harsh penalties: wage garnishment, tax refund seizure, damaged credit, and even reduced Social Security payments for older borrowers. These tools, long used by the federal government to recoup debt, are now affecting a larger and more financially fragile population.
At the same time, the policy environment around student loans has shifted dramatically. While the Biden istration oversaw more than $183 billion in forgiven loans for over 5 million borrowers, many of its broader forgiveness initiatives were blocked by the Supreme Court. Since then, the current istration has pivoted toward tighter restrictions and program rollbacks.
Applications for income-driven repayment plans were recently removed from federal websites, creating chaos for borrowers seeking manageable payment options. Although some forgiveness programs like Public Service Loan Forgiveness (PSLF) and Teacher Loan Forgiveness remain available, they are now harder to access due to additional limitations.
Sarah Sattelmeyer, project director at New America, raised concerns about the government's ability to assist borrowers: "This feels very much like it needs to be an all hands on deck effort, but they have dramatically cut the number of hands they have available."
A challenging economic backdrop
Beyond policy confusion, the broader economic environment is compounding the problem. Inflation remains elevated, job growth is slowing, and fears of a recession persist - all of which leave borrowers with fewer resources to stay current on their loans.
Constantine Yannelis, a professor of finance at the University of Chicago, explained, "I'm most worried about young people who are just going to be tremendously confused by the student loan system," adding that many of them will encounter a fragmented and poorly communicated repayment structure.
Additionally, reorganization within the Department of Education has weakened institutional capacity. Staff shortages, budget cuts, and a renewed focus on cost-efficiency have made it harder for the agency to distressed borrowers, even as the volume of those in need continues to grow.