May 5, 2025, marks the day the federal government will resume collections on defaulted student loans for the first time since March 2020. While numerous initiatives had delayed required payments or prevented student loans from being turned over to collections, the majority of those programs have now run out. (Keep in mind that these actions pertain to your federal student loans only – any provisions for private student loans vary by lender.)

What does “default” mean?

Your federal student loans may be in default if you haven’t made a payment in more than 270 days. This will be reflected on your credit report, impacting your credit score. Once you default on a loan, your entire balance is considered due.

Even if you are not officially in default, missed payments can impact your credit.

How do I know if I’m in default?

If you’re unsure of your status, reach out to your student loan servicer or log in to your account.

What happens now if I’m in default?

Communications regarding collections will ramp up – you may start receiving collections calls, and The U.S. Department of Education (ED) has announced it will resume collections by means such as:

• Wage garnishment (withholding of pay through your employer)
• Tax refund offsets
• Social Security benefit reductions

What are my options for getting out of default or making student loan repayment more affordable?

1. Loan Rehabilitation. Contact your servicer to see if loan rehabilitation is an option to get out of default status. You will be required to sign an agreement to make nine consecutive on-time payments. Collections may still take place until your loan is no longer in default, or you have made at least five rehabilitation payments.
2. Income-Based Repayment Plans. While the Biden Administration’s SAVE plan is no longer on the table, there are still options available for income-driven repayment (IDR) plans. These plans take into consideration your current income and adjust your payment amount accordingly.
3. Student Loan Consolidation. Student loan consolidation with the federal government allows you to combine your federal student loans into a single, fixed-rate loan based on the weighted average of the loans you are consolidating. You must make three on-time consecutive payments on the defaulted loan(s) or set up an IDR to be eligible for consolidation.
4. Private Student Loan Refinance. Private student loan refinance is the process of taking out a new loan with different terms. This can allow you to combine multiple loans into one convenient payment and could lower your monthly payment.

   However, it can be very difficult – if not impossible – to refinance with a private lender if your loans are currently in default. Utilize the steps above to get your payments back on track and private student loan refinance could be a consideration when you have gotten back into good standing and re-established better credit.

Beware of Scams

Unfortunately scammers often prey on those in financial turmoil. Stay in communication with your loan servicer or their verified collections contacts – you should not pay anyone a fee for the promise of debt relief or lower payments. Review ED’s tips for avoiding scams on their website.

The Bottom Line

When it comes to student loan default, the worst thing you can do is nothing. Take stock of your existing loans, and work with your servicers to begin making payments. By taking responsibility and being proactive, you can get back on the right track.

 

Remember that by refinancing federal student loans, you will lose certain borrower benefits from your original loans. These may include interest rate discount, principal rebates, or some cancellation/forgiveness benefits that can significantly reduce the cost of repaying your loans. Please consider these benefits carefully when considering your options for refinancing federal student loans.