May 2025: The State of Student Loans—What Borrowers Need to Know

As of May 5, 2025, the U.S. Department of Education has officially resumed full-scale collections on defaulted federal student loans. With more than 5 million borrowers currently in default, understanding the consequences—and available solutions—is critical in this evolving student loan landscape.

Collections Resume: What Happens If You’re in Default

Federal student loans enter default after 270 days of non-payment, which can trigger aggressive collection actions, including:

• Tax Refund Offsets – Your federal tax refund may be seized. 

• Wage Garnishment – Up to 15–25% of your wages can be withheld without a court order. 

• Social Security Offsets – Retirement benefits may be garnished (Social Security Disability Income remains protected).

In addition, an 18% collection fee can be added to your loan balance, along with ongoing interest and other charges.

For example, if you have a student loan balance of $30,000, collection fees alone could add $5,400 to your debt. And if you earn $60,000 a year, wage garnishment could reduce your monthly paycheck by $750 to $1,250.

As of this month, 5.3 million defaulted borrowers received notices that their 2024 tax refunds were offset. Later this summer, wage garnishment notices will follow for most defaulted borrowers. If you receive a notice, you’ll have 30 days to take action by contacting the Default Resolution Group. Borrowers with older FFEL loans must work directly with their state guaranty agency.

Options to avoid or resolve collections include:

• Loan Rehabilitation – Make 9 voluntary monthly payments to restore your loan to good standing. (Available once per loan.) 

• Loan Consolidation – Combine your defaulted loans into a new Direct Consolidation Loan, removing them from default. 

• Income-Driven Repayment (IDR) – Lowers monthly payments; however, does not remove loans from default unless consolidated first. 

If standard IDR payments are unaffordable, you can request a reasonable and affordable payment to potentially pause collections—though your loans will remain in default.

IDR Forgiveness Tracker Still Offline 

Due to ongoing litigation blocking the SAVE Plan and related IDR relief, the Department of Education has not reinstated the IDR Forgiveness Tracker on StudentAid.gov. 

As a result, borrowers: 

• Cannot view IDR payment counts 

• May face delays in forgiveness credit 

• Remain uncertain about forgiveness milestones 

Massive IDR Processing Backlog 

The Department’s April 30 status report revealed: 

• Over 2 million pending IDR applications 

• Only 79,000 applications processed in April 

• A majority of pending applications are tied to the paused SAVE Plan 

With court decisions not expected until 2026, many borrowers will likely remain in limbo for the foreseeable future. 

Student Success and Taxpayer Savings Plan Stalled 

The Student Success and Taxpayer Savings Plan, which proposes a simplified Income-Driven Repayment (IDR) structure, passed late Sunday night, May 18, 2025, after initially failing to advance out of the House Budget Committee on Friday, May 15.

Key components of the new repayment plan include:

• A new IDR plan for Direct Loan borrowers beginning July 1, 2026

• Monthly payments based on 1–10% of Adjusted Gross Income (AGI), with a $50 deduction per dependent

• A 30-year repayment term

• No negative amortization, meaning unpaid interest won't be added to your principal balance

What’s Next?

The bill now advances through the following legislative steps:

• House Rules Committee

• Full House vote

• Senate review and vote

At any point, the bill may be amended. If the Senate makes changes, the revised version must return to the House for approval.

While the proposal has taken a significant step forward, its final shape—and timeline—could shift depending on negotiations and political priorities in the weeks ahead. Borrowers should monitor developments closely, especially those who may benefit from future IDR improvements.

Student Loan Delinquency at Record Highs 

A recent TransUnion report highlights a growing crisis: 

• 20.5% of borrowers are 90+ days delinquent, compared to 11.5% in early 2020. 

• This marks the highest delinquency rate ever recorded. 

The number of borrowers in active repayment is at an all-time low, due to: 

• SAVE plan enrollees in administrative forbearance 

• Millions leveraging postponements due to hardship 

But these temporary protections are running out—and a fuller picture of borrower repayment behavior is just beginning to emerge. 

What Borrowers Should Do Now 

With collections resuming and federal relief programs paused or backlogged, taking action is critical: 

• If you're in default: Contact the Default Resolution Group or your guaranty agency to explore rehab or consolidation. 

• If you're pursuing forgiveness: Stay informed through official updates and verify any payment tracking as soon as tools become available. 

While the path to repayment relief remains open, it’s more complex and uncertain than ever. Stay proactive and informed—your financial future depends on it. 

At Student Debt Solutions, we’re actively monitoring these developments and will keep you informed as new information becomes available.

First Published: May 1, 2025