5 Million Student Loan Borrowers Face Mandatory Collections Starting May 5: What You Need to Know

As the clock ticks toward May 5, 2025, approximately 5 million Americans with defaulted student loans are bracing for a significant financial shift. The U.S. Department of Education has announced that mandatory collections will resume for borrowers who defaulted on their federal student loans before the COVID-19 pandemic payment pause began in March 2020. This marks the first time in five years that the government will actively pursue these debts, a move that could have far-reaching consequences for borrowers and the broader economy. In this comprehensive guide, we’ll explore the details of this policy change, its implications, and actionable steps borrowers can take to navigate this challenging landscape.

Understanding the Student Loan Default Crisis

A federal student loan enters default when a borrower fails to make payments for 270 days (approximately nine months). As of April 2025, roughly 5.3 million borrowers are in default, with an additional 4 million between 91 and 180 days late on payments. Less than 40% of all federal student loan borrowers are current on their payments, highlighting the scale of the repayment challenge. The $1.6 trillion student loan portfolio, affecting over 44 million Americans, underscores the magnitude of this issue.

The COVID-19 pandemic prompted an unprecedented pause on federal student loan payments and interest accrual, initiated in March 2020 under the Trump administration. This relief, extended multiple times through 2023, provided temporary financial breathing room for millions. However, the grace period ended in October 2024, and borrowers are now facing the resumption of repayment obligations. The upcoming mandatory collections, enforced through wage garnishments, tax refund offsets, and even Social Security withholdings, signal a return to pre-pandemic enforcement measures.

Why Are Collections Resuming Now?

The decision to restart collections aligns with the Trump administration’s broader efforts to overhaul the Department of Education, including plans to shutter the agency entirely. Education Secretary Linda McMahon has emphasized that the move protects taxpayers from bearing the cost of “irresponsible student loan policies” and ensures borrowers repay loans they “willingly undertook.” The administration argues that the Biden administration’s debt relief efforts, which canceled over $183.6 billion for more than 5 million borrowers, overstepped constitutional authority.

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However, critics like former Under Secretary of Education James Kvaal warn that the timing is problematic. The Department of Education has undergone significant staff reductions, with scores of Federal Student Aid (FSA) employees terminated. This downsizing raises concerns about the agency’s capacity to support borrowers transitioning back to repayment or seeking affordable repayment plans and loan forgiveness options. Kvaal told ABC News, “The concern is that the department is cutting the people who would help borrowers make this transition.”

The Impact of Mandatory Collections on Borrowers

The resumption of collections could have severe consequences for borrowers in default. Here are some key impacts to consider:

1. Wage Garnishments: Starting May 5, the Department of Education, in collaboration with the Department of Treasury, will implement the Treasury Offset Program. This allows the government to garnish wages, withhold tax refunds, and seize other federal benefits, including Social Security payments. Wage garnishment is a legal process where an employer is required to withhold a portion of a borrower’s earnings to repay the debt.
2. Credit Score Damage: Defaulting on a student loan can significantly harm a borrower’s credit score. The Federal Reserve Bank of New York estimates that a new delinquency can cause a credit score to drop by more than 150 points. This can limit access to future loans, housing, and employment opportunities.
3. Loss of Benefits and Licenses: In some states, defaulted borrowers risk losing professional licenses or driver’s licenses, further compounding financial and personal hardship. Kvaal described defaults as “tragic” for borrowers, noting their long-term ripple effects.
4. Economic Strain: Student Borrower Protection Center Executive Director Mike Pierce called the collections process “cruel” and “unnecessary,” arguing that it will “fan the flames of economic chaos” for working families. With millions already struggling to resume payments post-pause, the added pressure of collections could exacerbate financial instability.

The Broader Economic Context

The resumption of collections comes at a precarious time. The Federal Reserve Bank of New York reports that 9.7 million borrowers became past due on their student loans after the COVID-era payment pause ended in September 2023, with over $250 billion in delinquent debt. This delinquency rate, coupled with economic uncertainty, raises concerns about borrowers’ ability to manage their debts.

Moreover, the Department of Education’s staff reductions and the potential transfer of the student loan portfolio to the Small Business Administration (SBA) or Treasury Department could create further chaos. Critics argue that these agencies lack the expertise to manage borrower rights under the Higher Education Act of 1965, potentially prioritizing debt collection over borrower protections.

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What Borrowers Can Do to Prepare

While the resumption of collections is daunting, borrowers have options to mitigate the impact. The Department of Education has promised a “comprehensive communications and outreach campaign” to inform borrowers about repayment and default resolution options. Here are actionable steps to consider:

1. Explore Income-Driven Repayment (IDR) Plans

IDR plans adjust monthly payments based on a borrower’s income and family size, with forgiveness of remaining debt after 20 or 25 years. Despite a recent pause on IDR applications due to legal challenges, the Department of Education plans to resume processing in May 2025. Borrowers should monitor updates and apply as soon as possible to reduce payments and avoid default.

2. Apply for Loan Forgiveness Programs

Programs like Public Service Loan Forgiveness (PSLF) offer debt relief for borrowers in public service careers after 10 years of qualifying payments. The Biden administration expanded PSLF, benefiting over 1 million borrowers, but the Trump administration may halt such programs. Eligible borrowers should act quickly to submit applications before potential policy changes.

3. Rehabilitate Defaulted Loans

Loan rehabilitation allows borrowers to resolve default status by making nine affordable, on-time payments within 10 months. This can remove the default from credit reports and restore eligibility for federal aid. Contact your loan servicer to initiate this process.

4. Consolidate Loans

Consolidating federal student loans into a Direct Consolidation Loan can simplify repayment and make borrowers eligible for certain forgiveness programs. This option may also extend the repayment term, lowering monthly payments.

5. Communicate with Loan Servicers

Reach out to your loan servicer to discuss repayment options, forbearance, or deferment if you’re facing financial hardship. The Department of Education advises borrowers to stay proactive and avoid ignoring collection notices.

6. Stay Informed

With ongoing legal battles and policy shifts, borrowers should regularly check the Federal Student Aid website (studentaid.gov) and their loan servicer’s portal for updates. Joining advocacy groups or following trusted news sources can also provide valuable insights.

The Political and Legal Landscape

The resumption of collections is part of a broader political debate over student loan debt. The Biden administration canceled $188.8 billion in debt for 5.3 million borrowers through targeted programs like PSLF and income-driven repayment fixes. However, the Supreme Court struck down Biden’s broader $400 billion debt relief plan in 2023, ruling it unconstitutional. The Trump administration has criticized these efforts, with Secretary McMahon arguing that loan balances cannot “simply disappear.”

Legal challenges continue to shape the student loan landscape. The Saving on a Valuable Education (SAVE) Plan, an income-driven repayment program, faced court injunctions in 2024, leading to a temporary halt in IDR applications. The American Federation of Teachers filed a lawsuit in March 2025, alleging that the Department of Education’s pause on IDR processing violates federal law. These disputes create uncertainty for borrowers seeking affordable repayment options.

Additionally, proposals to move the student loan portfolio to the SBA or privatize the system altogether have sparked concerns. Critics like Mike Pierce argue that such moves are “illegal” and could erode borrower protections. The Higher Education Act of 1965 mandates that the Federal Student Aid Office, under the Secretary of Education, oversees student loans, raising questions about the legality of transferring oversight.

Looking Ahead: The Future of Student Loans

The resumption of mandatory collections is a pivotal moment for the student loan system. With millions of borrowers at risk of wage garnishments and financial hardship, the stakes are high. The Department of Education’s ability to manage this transition, amidst staff cuts and potential agency restructuring, remains uncertain. Borrowers must take proactive steps to protect their financial stability, while policymakers and advocates continue to debate the role of debt relief and borrower protections.

For now, the focus is on May 5, 2025, when collections will begin. Borrowers should act swiftly to explore repayment options, seek professional advice, and stay informed about policy changes. By taking control of their student loan obligations, they can navigate this challenging period and work toward a more secure financial future.

Key Takeaways

• 5.3 million borrowers are in default and face mandatory collections starting May 5, 2025.
• Wage garnishments, tax refund offsets, and Social Security withholdings are among the collection methods.
• Staff reductions at the Department of Education may hinder borrower support.
• Income-driven repayment, loan rehabilitation, and consolidation are viable options to avoid collections.
• Legal and political debates continue to shape the student loan landscape, creating uncertainty.

For more information, visit the Federal Student Aid website or contact your loan servicer. Stay proactive, and don’t let default define your financial future.