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

Beginning May 5, 2025, the Department of Education is officially resuming full-scale collections on defaulted federal student loans. With over 5 million borrowers currently in default, it’s critical to understand what this means for your finances and what options remain available in an increasingly uncertain landscape.

Collections Resume: What Happens If You’re in Default

Federal student loans enter default after 270 days of non-payment, triggering aggressive collections that can include:

• Treasury Offsets: Your tax refund can be seized.

• Wage Garnishment: Up to 15–25% of your paycheck can be taken without a court order.

• Social Security Offsets: Your retirement income can be garnished (note: Social Security Disability Income is protected).

Additionally, an 18% collection fee can be added to your loan balance, along with accruing 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.

If you receive a notice regarding garnishment or offset, you’ll have 30 days to take action by contacting the Default Resolution Group. Borrowers with older FFEL loans will need to work with their state guaranty agency.

Options to avoid or resolve collections include:

• Loan Rehabilitation: Restores your loan to good standing after 9 monthly payments (usually only available once).

• Consolidation: Combines your loans into a new Direct Consolidation Loan, removing them from default.

• Income-Driven Repayment (IDR): May lower payments but does not remove your loan from default unless done through consolidation.

If IDR payments are unaffordable, you can request a reasonable and affordable payment—this may pause further collection actions but still leaves the loan in default.

IDR Forgiveness Tracker Removed

Due to a federal court injunction blocking the SAVE plan and pausing certain IDR-related relief, the Department of Education has temporarily removed the IDR forgiveness tracker from StudentAid.gov.

This means borrowers:

• Can’t view their IDR payment counts

• May experience delays in credit toward forgiveness

• Could have uncertainty around eligibility for upcoming IDR forgiveness milestones

While this data outage is temporary, it underscores how litigation continues to affect critical borrower protections and relief efforts. Borrowers are encouraged to download payment histories now and document everything as we await further guidance.

What’s Next: Rulemaking Could Reshape Repayment and PSLF

The Department of Education is currently engaged in Negotiated Rulemaking, a process aimed at refining and improving federal student aid regulations. Topics under discussion include:

• Public Service Loan Forgiveness (PSLF): Updating the definition of a qualifying employer to improve access and reduce confusion.

• Repayment Plans: Revisiting Pay As You Earn (PAYE) and Income Contingent Repayment (ICR) to streamline choices.

• Institutional Accountability: Proposals to cut college costs, strengthen program integrity, and improve institutional quality.

These negotiations could reshape the student loan landscape again by 2026. Borrowers should stay informed as these changes may offer new relief pathways—or close existing ones.

Take Action Now

With collections resuming and federal relief programs in flux, it’s more important than ever to take proactive steps. If you’re in default, act quickly to understand your options. If you're pursuing forgiveness, monitor updates closely. The path to student loan relief remains open—but it's more complex than ever.

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