The NorthState’s News (KRCR-TV) Interview with Dr. Shaan Patel

Student Loan Collections Are Resuming—Here’s What Borrowers and Families Need to Know
By Dr. Shaan Patel, CEO & Founder of Prep Expert

After more than four years of pause, federal student loan collections on defaulted loans are officially returning. Starting May 5th, 2025, the U.S. Department of Education’s Office of Federal Student Aid (FSA) will resume collections on loans that are already in default.

If you’re a borrower—or the parent of one—this is not the time to stay passive. The consequences of ignoring defaulted student loans can be severe, and the window to act is closing.

As the founder of Prep Expert, and someone who paid off six figures in student loans myself, I want to break down what this change means for borrowers, what to expect if you’re behind, and how to avoid financial disaster.

The Student Loan Freeze Is Over

During the COVID-19 pandemic, federal student loan payments were paused as part of emergency relief measures. That pause extended to collections on defaulted loans—loans that borrowers had failed to repay for 270 days or more.

For many, this relief offered breathing room. But starting May 5, 2025, that protection ends.

Borrowers in default will now face:

• Wage garnishments
• Tax refund seizures
• Negative credit reporting
• Debt collection agency referrals

And in some cases, your entire financial life can be disrupted. That’s why it’s critical to act before the system acts on you.

What Is Default—and Are You in It?

Not all missed payments result in default. But here’s the general rule:

If you haven’t made a payment in 270 days (about 9 months) on a federal student loan, it’s considered in default.

And once a loan defaults, the entire balance becomes due immediately, often with late fees, interest, and collection costs stacked on top.

This isn’t just a student problem—it affects families, especially when parents co-signed or took out Parent PLUS loans.

You Still Have Options—But You Must Act Fast

The good news: most borrowers can avoid aggressive collections if they act now.

The first step is to contact the Department of Education or your loan servicer. Ask about income-driven repayment (IDR) plans. These programs base your monthly payment on your income and family size. In some cases, your payment could be as low as $0.

Here are your main options:

1. Rehabilitation

A one-time opportunity to “fix” a default. You make 9 on-time payments over 10 months, and your loan is removed from default. It even improves your credit report.

2. Consolidation

Combine your defaulted loans into a new Direct Consolidation Loan. Once approved, you’re no longer in default. You must agree to an income-driven repayment plan or make three consecutive payments first.

3. Income-Driven Repayment Plans (IDR)

There are four main IDR plans. These cap your monthly payments at 10%–20% of your discretionary income and offer loan forgiveness after 20–25 years. Some plans also include interest subsidies that prevent balances from ballooning.

If you don’t act, you could face wage garnishment without a court order, seizure of tax refunds, and collection agency harassment.

Thinking About Taking Out Loans? Start with These Safer Options

If you’re preparing for college and considering taking out loans, here’s my honest advice: make loans your last resort.

Here’s what I recommend first:

• Scholarships: Billions are available every year from private organizations, schools, and nonprofits. Start searching early and apply often.
• Grants: These are typically need-based and don’t need to be repaid. Federal Pell Grants, state aid, and institutional grants are all options.
• Work-Study and Part-Time Jobs: They won’t pay your full tuition, but they can reduce your borrowing burden.
• Family Savings and 529 Plans: If available, these tax-advantaged savings accounts can cover tuition, books, and other expenses.
• Tuition Reimbursement Programs: Many employers offer to pay for all or part of your education in exchange for working while studying or committing to a role after graduation.

Loans should only fill the final gap, after all other options have been exhausted.

What About the Biden Administration’s Loan Forgiveness Plans?

You’ve probably heard about President Biden’s attempts to cancel student debt. Some borrowers already saw relief through Public Service Loan Forgiveness (PSLF) or recent income-driven repayment (IDR) adjustments.

But broader forgiveness programs have faced legal battles—and the recent policy shifts from the Trump administration suggest that future support for blanket forgiveness may be limited.

In short: count on what’s guaranteed, not what’s proposed. That means:

• Understanding your current repayment options
• Avoiding default
• Securing aid that doesn’t require repayment in the first place

My Advice for Families: Build a Smart, Long-Term Plan

If you’re a student or parent trying to plan for college without going deep into debt, here’s what I recommend:

1. Apply for FAFSA Early

Even if federal aid is unstable, it’s still the gateway to grants, loans, and many scholarships.

2. Maximize Free Money

Use private scholarships, institutional awards, and state aid. At Prep Expert, we’ve helped students win over $100 million in scholarships—and many of those were completely independent of federal programs.

3. Prepare for Standardized Tests

Yes, test scores are back. Harvard, Yale, and others have reinstated SAT/ACT requirements. A strong score can make the difference between paying full tuition and getting a merit-based scholarship.

4. Avoid Default at All Costs

If you already have loans, do whatever you can to stay out of default—or rehabilitate your loans now before collections resume.

5. Keep Documentation

Always keep digital and hard copies of communication with loan servicers. If your servicer changes or a representative leaves, you’ll need a paper trail to avoid confusion or lost progress.

Final Thoughts

For years, student loan borrowers had a moment to breathe. But now, the clock is ticking again—and default collections are returning.

The worst thing you can do right now is ignore your debt. The best thing? Take action.

Whether you’re just starting your college journey or already managing repayment, your financial future depends on understanding the system, acting early, and protecting yourself from unnecessary risk.

And if you need help—from test prep to scholarships to strategic college planning—my team at Prep Expert is here for you.

Because your education is one of the most powerful investments you’ll ever make. But how you fund it? That decision matters just as much.

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Dr. Shaan Patel is a Shark Tank winner, bestselling author, and founder of Prep Expert, a leading education company helping students raise test scores, secure scholarships, and navigate the path to college with clarity and confidence.