US Department of Education Resumes Student Loan Collections Impacting Millions

The US Department of Education has resumed sending defaulted student loans to collections starting May 5, ending a five-year pause on repayment enforcement. This move affects over 5 million borrowers who have not made payments for more than 360 days, placing their loans in default and exposing them to severe financial consequences.

Loans become delinquent after 90 days past due, damaging credit scores, and enter default status after 270 days, making the entire loan balance due immediately. At this stage, loan servicers can add collection fees and initiate wage garnishment, increasing financial strain on borrowers.

Borrowers can verify their loan status through the StudentAid.gov portal or by contacting their loan servicer. If loans are in default, experts recommend taking immediate action to avoid collection efforts and wage garnishment.

Options for Borrowers with Defaulted Student Loans

1. Apply for Direct Loan Consolidation

• Consolidation can quickly remove loans from default status and stop collection activity.
• Eligibility depends on having other eligible loans if the defaulted loan is already consolidated.
• Consolidation does not remove the default from credit history and may add interest and collection fees to the balance.

Borrowers can enter income-driven repayment plans or make three consecutive on-time payments to qualify for consolidation, which may take up to 90 days.

2. Enter Loan Rehabilitation

• Requires nine consecutive on-time payments based on income to remove default status.
• Removes the default from credit reports but not the record of delinquencies.
• Prevents wage garnishment if rehabilitation starts before garnishment begins; otherwise, payments are in addition to garnished wages.

Rehabilitation is ideal for borrowers aiming to rebuild credit, while consolidation may be better for those seeking to qualify for additional financial aid.

3. Pay Off the Entire Balance

Paying off the full loan balance within 65 days of default notification avoids collections and negative credit reporting, though it may be financially challenging for many borrowers.

Borrowers can check balances via their loan servicer’s website or StudentAid.gov using their federal student aid credentials.

With millions affected, understanding these options is critical to managing student loan debt and avoiding long-term financial damage. Taking prompt action can prevent wage garnishment and help borrowers regain financial stability.