U.S. Resumes Collections on Defaulted Student Loans Next Week

RIVERSIDE, Calif. (KABC) — The U.S. Department of Education’s Office of Federal Student Aid will restart collections on defaulted student loans starting May 5, 2025, affecting more than 5 million borrowers across the nation.

The pause on collections was implemented during the COVID-19 pandemic as part of relief efforts. Now, borrowers like La Shanna Mason from Riverside are facing financial strain as the pause lifts. Mason, who has struggled with unemployment, expressed concern, saying, “Right now, I can’t repay them due to unemployment. But they do make it affordable if you turn in your income information. They’ll try to work with you.”

Sabrina Calazans, the executive director of the Student Debt Crisis Center, warned that many borrowers will experience additional hardships as collections resume. “These folks are going to find themselves in additional financial hardship,” she said, highlighting that defaulted borrowers could face wage garnishments and tax refund seizures.

U.S. Secretary of Education Linda McMahon defended the administration’s decision, stating, “American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies.” She emphasized that borrowers who fail to make timely payments will see their credit scores decline.

Involuntary collections, which can result in wage garnishments or withholding tax refunds, will begin soon after notifications are sent to borrowers. Ken Ruggiero, co-founder and CEO of Ascent Funding, described this process as “one of the harshest consequences borrowers can face when federal student loans fall into default.”

Experts recommend that affected borrowers act quickly to explore options like income-driven repayment plans or loan rehabilitation. Nicholas Hillman, a professor at the University of Wisconsin-Madison, noted, “All of the responsibility is on the borrower,” stressing the importance of understanding one’s loan status.

As the government resumes collections, many borrowers are concerned about how this will affect their financial stability and future credit opportunities. Khandice Lofton, counsel at the Student Protection Borrower Center, urges borrowers to reach out to their elected officials for assistance, saying, “What we’re pushing right now is for every borrower to take steps to reach out to their elected officials.”

With the restart of collections, borrowers now face significant changes to their financial situations. Many may struggle to make necessary purchases and loans due to potentially lower credit scores.