The federal government resumed collections on defaulted federal student loans starting May 5, 2025, marking the first time in five years that such collections have restarted after pandemic-related pauses. This means the Department of Education can now garnish wages, tax refunds, and even Social Security benefits of borrowers whose federal student loans are in default—defined as being 270 days or more past due.
When Do Collections Resume
- Collections officially restarted on May 5, 2025.
- The next enforcement phase, expected in late summer 2025, will include sending wage garnishment notices to defaulted borrowers.
Current Delinquency Rates
- Student loan delinquency rates have reached an all-time high.
- Approximately one in five federal student loan borrowers is seriously delinquent, meaning they have payments overdue by 90 days or more.
- This rise in delinquency has contributed to a drop in the average American FICO credit score, which fell from 716 in January to 715 in February 2025 as student loan delinquencies began affecting credit reports again.
Confusion on Repayment Plans
- The Department of Education has reopened applications for income-driven repayment (IDR) plans starting May 2025 but with initial confusion over how spousal income is considered when calculating monthly payments for married borrowers.
- Initially, the Department planned to include spousal income even if couples file taxes separately, but this policy was quickly reversed after backlash.
- Legal uncertainty remains around some Biden-era income-driven repayment plans, such as the “Saving on a Valuable Education” program, due to federal court rulings blocking implementation and leaving millions awaiting resolution.
Impact on Borrowers with Credit Scores and What They Can Do
- With collections resuming and delinquencies reported again, borrowers who have defaulted may see their credit scores decline, which can affect their ability to access credit, housing, or employment opportunities.
- Experts advise borrowers affected by adverse credit impacts to take the following actions:
- Contact loan servicers or the Department of Education to understand available repayment options and avoid further default.
- Apply for income-driven repayment plans to reduce monthly payments based on income, once eligibility criteria are clarified.
- Seek credit counseling or financial advice to manage debt and rebuild credit.
- Stay informed about policy updates, especially court decisions that may affect repayment programs.
- Borrowers who struggle may qualify for loan rehabilitation or consolidation programs to remove default status and improve credit standing over time.
The restart of collections is a significant shift following pandemic relief policies and poses challenges for millions of borrowers. It is crucial for affected individuals to engage proactively with their loan servicers and explore all available repayment avenues to mitigate credit damage and regain financial stability.
This comprehensive update highlights key dates, the critical state of delinquency, repayment plan uncertainties, and practical advice for defaulted borrowers amid the 2025 federal student loan collections restart.
There has been no better time to challenge the accuracy of the way student loans are being reported by the Credit Bureaus. 42% of loan servicers in 2020 are no longer in business. Different information across all three Bureaus, mistakes in reporting, and other factors aid in the success rate of these derogatory accounts coming off of credit reports. Please, reach out to us to discuss how we may be able to help.
