Urgent Update for Student Loan Borrowers in Default: Major Changes Effective May 5, 2025
The U.S. Department of Education has announced that, starting May 5, 2025, it will resume collections on federal student loans that are in default. This decision affects over 5 million borrowers who have not made payments in over 270 days, as well as an additional 4 million who are severely delinquent .Reuters+2Politico+2Investopedia+2
What This Means for Borrowers:
If you are in default, you may face severe financial consequences, including:
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Wage Garnishment: The Department of Education plans to implement administrative wage garnishment, allowing up to 15% of a borrower’s income to be withheld .Investopedia
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Treasury Offset Program: Borrowers who remain in default risk losing tax refunds and Social Security benefits through the Treasury Offset Program .
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Credit Score Impact: Failure to resume payments may adversely affect credit scores, making it more challenging to obtain future credit .Investopedia
What You Can Do:
To avoid these penalties, consider the following options:
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Income-Driven Repayment (IDR) Plans: These plans adjust monthly payments based on income and family size, potentially lowering payments to an affordable level .Investopedia
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Loan Rehabilitation: This process involves making a series of agreed-upon payments to bring the loan out of default status .
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Default Resolution Group Assistance: Borrowers can contact the Default Resolution Group for guidance on repayment options and to discuss eligibility for rehabilitation or IDR plans .
It’s crucial for borrowers in default to take immediate action to avoid severe financial consequences. Utilizing available relief options can help manage debt and prevent further penalties .
