The U.S. Department of Education will restart collections for defaulted student loans on May 5, ending a pandemic-era pause that shielded millions of borrowers from wage garnishments and damaged credit scores.
More than 5 million Americans with defaulted loans are expected to be impacted. Borrowers who are at risk are urged to act now to avoid severe financial consequences.
What happens when collections resume?
When federal student loans default, the government can take aggressive steps to collect the debt. These actions may include:
- Wage garnishment
- Seizure of tax refunds
- Offsetting Social Security benefits
- Negative credit reporting
Experts warn that credit scores could drop sharply. According to the New York Federal Reserve, borrowers with excellent credit (scores above 760) could lose an average of 171 points if delinquency is reported. Subprime borrowers may lose about 87 points.
“The consequences are worse for those starting out with good credit scores,” said Judith Scott-Clayton, an economics professor at Columbia University.
Why now?
The Department of Education paused collections during the COVID-19 pandemic to protect borrowers. When payments resumed in fall 2023 under President Biden, a 12-month “on-ramp” period allowed borrowers to miss payments without falling into delinquency or default.
That grace period ended in October 2024. As a result, millions who failed to resume payments are now classified as delinquent or in default — with collections set to begin.
Sabrina Calazans, executive director of the Student Debt Crisis Center, estimates that an additional 4 million borrowers are in late-stage delinquency and could also default soon.
How borrowers can avoid collections
If your loan is already in default, the Department of Education urges immediate action:
- Visit StudentAid.gov to check your loan status.
- Enroll in a loan rehabilitation program to get out of default.
- Apply for an income-driven repayment plan that could lower monthly payments to as little as $0.
“Rehabilitation is often one of the easiest ways for borrowers to get back on track and protect their credit,” said Persis Yu, deputy executive director of the Student Borrower Protection Center.
For borrowers like Samantha DeSantis from Clinton Township, Michigan, the risk feels personal. After defaulting on her loans while still in school, she now waits in a temporary forbearance, unsure if her payment plan will be approved before collections begin.
“I couldn’t imagine my checks being garnished right now,” she said. “I can barely make a living as it is.”
What falling credit scores mean for borrowers
A damaged credit score can have lasting impacts:
- Higher interest rates on loans and credit cards
- Difficulty securing mortgages, car loans, or even rental agreements
- Potential employment issues, as some employers check credit during hiring
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