5 things to know about the return of student-loan collections
Financial aid experts weigh in on who’s affected, what’s changing and how to avoid surprises when payments resume.
The U.S. Department of Education is set to resume collections on defaulted student loans starting Monday. This will mark the end of a five-year pause that began during the pandemic under the Trump administration and was extended multiple times.
RED talked with Metropolitan State University of Denver’s Jennifer Helgeson, director of compliance for the Office of Financial Aid and Scholarships, and Michael Vuong Nguyen, interim executive director of Financial Aid and Scholarships, for insight into what borrowers need to know about the change.
Why this is happening now
The Department of Education says the decision to restart involuntary collections comes from a mix of shifting policies, a renewed focus on repayment enforcement and growing concerns about long-term loan delinquency.
“The pause was always temporary,” said Helgeson. “The department is now shifting back to enforcement to ensure that borrowers address their defaulted loans.”
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What’s happening Monday
Collections on defaulted federal student loans will resume. That could mean the government might withhold federal payments — like tax refunds or Social Security — or even garnish wages from borrowers who are in default.
“It’s important to note that MSU Denver students currently enrolled and in good standing are not directly impacted,” said Nguyen. “This change impacts borrowers who defaulted before or during the pause.”
How to know if you’re in default
Starting this summer, the Department of Education will notify defaulted borrowers that administrative wage garnishment is set to begin. That means up to 15% of a borrower’s disposable income could be taken directly from their paycheck to repay loans. Disposable income is calculated based on a formula created by the Department of Education that uses federal poverty levels.
“Borrowers should check their loan status at studentaid.gov to see if they’re in default,” Helgeson advised.
What happens if you’re in default
If you’re in default, don’t ignore it. Within the next couple of weeks, the Federal Student Aid office will send emails with info on how to contact the Default Resolution Group. They can help you figure out next steps, including options for getting out of default and setting up a repayment plan.
“We encourage borrowers to reach out proactively,” Nguyen said. “There are options available to help them get back on track.”
Repayment options
There are a few ways to manage your loans:
- Make regular monthly payments
- Enroll in an income-driven repayment plan
- Enter loan rehabilitation, which helps bring your loan back into good standing
The FSA office is planning a big outreach effort — e.g., emails and social media — to make sure borrowers are informed. It’s also rolling out an “enhanced” income-driven repayment process to make signing up easier.
“The enhanced IDR process aims to simplify enrollment, making it easier for borrowers to manage their payments,” Helgeson explained.
Check your loan status and explore repayment options at studentaid.gov.
