Federal Student Loan Borrowers Facing Debt Collection Efforts

The U.S. Department of Education has announced that it will resume collections on defaulted federal student loans. The federal government hasn't collected on defaulted loans since March 2020. Here is some background followed by answers to questions about the new policy.

A recent history of payment pauses and court challenges

The coronavirus pandemic began a series of student loan payment deferments for federal borrowers starting in March 2020. In August 2022, an executive order canceling up to $10,000 of federal student loan debt was issued and subsequently ended by the U.S. Supreme Court. In June 2023, Congress officially ended the student loan payment moratorium, and the Department of Education announced that federal student loan payments would resume in October 2023. Around the same time, the Department created the Saving on a Valuable Education (SAVE) Repayment Plan, which offered borrowers lower monthly payments and a faster path to loan forgiveness. After SAVE was passed, it faced multiple legal challenges and was eventually blocked in August 2024.

How many are affected by this new enforcement policy?

• More than five million borrowers have not made a monthly payment in over 360 days and are considered to be in default

• Four million borrowers are considered in late-stage delinquency (91–180 days behind)

The new collections policy technically applies to all borrowers but will most immediately affect the nine million borrowers who are currently considered in or close to default.

Note: Different federal student loans may have different rules on when default status is reached. Visit the federal student aid website for more information.

What will happen to borrowers in default?

The education department plans to refer all borrowers, who have federal student loans considered to be in default, to a federal debt collection service. Prior to that happening, all borrowers considered in default should receive email communication from the Office of Federal Student Aid encouraging them to start making payments, enroll in an income-driven repayment plan, or sign up for loan rehabilitation.

Borrowers who are unable to make payments after "sufficient notice and opportunity" are reported to be subject to involuntary collections, which could include wage garnishment. Wage garnishment means borrowers considered in default could see automatic deductions from their paychecks to cover loan payments. This would also have a negative impact on credit scores, which can make it harder to rent an apartment, obtain a credit card, car loan, or mortgage.

More information is expected to be available on studentaid.gov in the coming weeks.

To learn more about what this means for you, your loans and how to minimize any damage to your credit score, contact MNM Vested, LLC.