Millions of Borrowers Face Financial Reckoning as Student Loans in Collections Restarts After Five-Year Pause

More than 5 million Americans are bracing for significant financial strain as the federal government reboots its debt collection machinery for student loans in collections. After years of relief during the pandemic, defaulted borrowers—those who have fallen nine months or more behind on federal student loan payments—will now face aggressive enforcement actions beginning this week, including wage seizures and garnishment of federal benefits.

The Scale of the Crisis

The situation has grown dire. Only 38% of borrowers currently maintain good standing on their loans, according to Education Department data. Meanwhile, delinquency rates have skyrocketed since repayment requirements resumed: approximately 20% of borrowers in active repayment were at least 90 days past due as of February, compared to just 11.5% in February 2020—a staggering increase that reflects the struggle millions face in resuming payments after years of suspension.

The credit impact has been immediate and devastating. In February alone, 2.7 million borrowers slipped into delinquency status, with credit scores plummeting by as much as 171 points, according to FICO data. The cumulative effect was so pronounced that America’s average credit score dropped by a full point to 715 in that month alone.

What Collections Means for Borrowers

The reactivation of student loans in collections enforcement introduces a cascade of severe consequences that extend far beyond the monthly payment itself. Once a loan enters default status—approximately nine months of nonpayment—borrowers lose access to critical federal programs including forbearance, deferment, and income-driven repayment plans. Eligibility for Pell Grants and new federal student aid evaporates entirely.

The Treasury will immediately begin intercepting federal tax refunds entirely and withholding up to 15% of Social Security benefits and federal employee disposable income. Later in the summer, notices of wage garnishment will be distributed to private sector employees, enabling the government to directly seize portions of paychecks.

Beyond these immediate financial hits lies a broader catastrophe: the default notation reported to credit bureaus severely damages creditworthiness, often making it nearly impossible to secure mortgages, auto loans, or engage in other major financial transactions.

The Path Forward for Struggling Borrowers

For those currently in default, options exist but require commitment. Borrowers can access myeddebt.ed.gov to explore available remedies. To restore a loan to good standing, borrowers must complete either a loan rehabilitation program or consolidation process through the Education Department—a process that typically spans up to ten months.

Borrowers uncertain about their status should log into studentaid.gov or watch for notification emails from the Education Department regarding collection activities.

A Mounting Challenge Ahead

Experts warn that default numbers are expected to double within coming months as more borrowers struggle with the adjustment to resumed payments after an extended suspension. Critics argue that the sudden enforcement restart—occurring while the Education Department itself faces institutional disruption following significant staff reductions—demonstrates a concerning lack of coordination and compassion for borrowers already facing mounting economic pressure.