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Student Loan Collections Are Coming Back—Here’s What Borrowers Need to Know Before May 5
By Dr. Shaan Patel, CEO & Founder of Prep Expert

After more than four years of pause, the federal government is about to resume one of its most powerful—and intimidating—tools: student loan collections on defaulted loans.

Beginning May 5, millions of Americans with federal student loans in default could face wage garnishments, tax refund seizures, and even the withholding of Social Security payments if they don’t take action.

If you’re one of the 5.3 million borrowers currently in default, this update matters. A lot.

And even if you’re not, it should serve as a powerful reminder: student loans don’t disappear. They may be paused, deferred, or talked about on the campaign trail—but at the end of the day, they’re a legal obligation. And failing to plan around them can lead to serious long-term consequences.

Here’s what’s happening, how it works, and what you should do right now.

What’s Changing on May 5?

The Department of Education has announced that it will restart collections on defaulted federal student loans. That means:

• Borrowers will begin receiving notices through the Treasury Department’s offset program
• If ignored, the government can begin garnishing wages without a court order
• They can also seize tax refunds or withhold federal benefits like Social Security

This isn’t new. It’s been the law for years. But during the pandemic, these enforcement tools were paused. Now, they’re coming back—and millions of borrowers could be impacted.

What Is Default, and Are You in It?

A federal student loan enters default when a borrower fails to make a payment for 270 days (about 9 months).

Once that happens:

• The full balance becomes immediately due
• The loan may be turned over to a collections agency
• Your credit score can plummet
• And you lose eligibility for deferment, forbearance, or new aid

If you’re not sure about your loan status, visit StudentAid.gov right away and log in with your FSA ID. Check to see if any of your loans are listed as “in default.” If they are—don’t wait for a letter in the mail. Take action now.

What Happens If You Do Nothing?

If your loan is in default and you ignore communication from Federal Student Aid, here’s what can happen:

• Wage garnishment: The federal government can take up to 15% of your disposable income directly from your paycheck
• Tax refund offset: Your federal refund (and sometimes state refunds) can be redirected to pay off your loan
• Social Security offset: Retired borrowers can have a portion of their benefits withheld
• Collection fees: In addition to what you owe, you may be charged additional fees by third-party agencies

This isn’t just about finances—it can affect your ability to buy a home, get a job, or qualify for future aid. But again: you still have options.

What You Can Do Now to Avoid Collections

The Education Department has made it clear: if you act early, they’ll work with you.

Here are the three most effective strategies:

1. Loan Rehabilitation

This is a one-time opportunity to bring a defaulted loan back into good standing. You’ll be asked to:

• Make 9 on-time monthly payments over 10 months
• Payments can be based on income, sometimes as low as $5/month
• After completion, the default is removed from your credit report

Rehabilitation can only be done once per loan, so it’s a powerful reset—but not something to be misused.

2. Loan Consolidation

This combines one or more federal loans into a new Direct Consolidation Loan, removing the default status immediately.

• You must agree to an income-driven repayment (IDR) plan
• Or make three voluntary payments beforehand
• Consolidation is faster than rehabilitation—but the default may remain on your credit report

It’s a great option if you want to quickly resume eligibility for financial aid or get back on track for Public Service Loan Forgiveness.

3. Income-Driven Repayment Plans (IDR)

If you’re not in default but are behind or struggling, IDR plans cap payments at 10–20% of your discretionary income and offer loan forgiveness after 20–25 years. Recent updates to the SAVE Plan make this an even more borrower-friendly option.

Whatever you do, don’t go silent. Communication is your most powerful tool.

Choosing a College? Plan to Borrow Last, Not First

If you’re a student or parent about to start the college application process, this news should serve as a wake-up call:

College choice is now a financial decision first, not just an academic one.

Private colleges can cost $200,000 or more. Public universities are closer to $100,000. And the average student loan balance hovers around $38,000—but many students borrow far more.

Here’s how to avoid joining the default ranks later:

• Compare schools based on net price, not sticker price
• Use tools like the College Scorecard to see average earnings and debt by program
• Choose programs with strong job placement and internship pipelines
• Avoid borrowing more than your expected first-year salary after graduation
• Apply for as many grants and scholarships as possible before even considering loans

At Prep Expert, we teach families to exhaust every free funding source first—then borrow only what’s absolutely necessary. And even then, to treat student loans like any other form of debt: with caution and a clear repayment plan.

Will Loan Forgiveness Still Happen?

There’s been a lot of political noise around student loan forgiveness over the last five years. Some borrowers have seen relief—especially through public service programs or income-driven repayment adjustments.

But as of now, large-scale forgiveness is unlikely to expand under the current administration.

Student loan debt, if not repaid, doesn’t just disappear—it gets transferred to taxpayers. That’s the core argument behind the government’s decision to resume collections: these loans were borrowed, the terms were known, and it’s time for repayment.

So while forgiveness may still exist for some, reliance on sweeping cancellation is not a financial plan.

Final Thoughts

If you’ve defaulted on your student loans, this is your moment to act. If you’re applying to college, this is your moment to plan.

Don’t ignore emails from your loan servicer. Don’t let interest compound and destroy your credit. And don’t let prestige blind you to the financial reality of your college choice.

At the end of the day, a college degree is still one of the best investments you can make—but only if you approach it with the same discipline and awareness you would any other financial decision.

If you need help understanding your loan options, building a smart application strategy, or winning scholarships to reduce debt altogether, Prep Expert is here for you.

Because education should be a launchpad—not a lifelong liability.

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Dr. Shaan Patel is a Shark Tank winner, bestselling author, and founder of Prep Expert, a national education company that helps students raise test scores, win scholarships, and attend college without drowning in debt. He scored a perfect SAT and has helped families secure over $100 million in scholarships.