Education Dept Sends Student Loans in Default to Collections

Next month, the Dept of Education will start collection on defaulted loans that is roughly 5.3 million borrowers. They will collect through garnishing of wages for potentially millions of borrowers, officials said Monday.

No federal student loans have been referred for collection since March 2020, including those in default. Under President Joe Biden, the Education Department tried multiple times to give broad forgiveness of student loans, only to be stopped by courts.

In 2020, President Donald Trump paused federal student loan payments and interest accrual as a temporary relief measure for student borrowers. The pause in payments was extended multiple times by the Biden administration through 2023, and a final grace period for loan repayments ended in October 2024. That meant tens of millions of Americans had to start making payments again.

Borrowers who don't make payments for nine months go into default, which is reported on their credit scores and can go to collections.

Along with the borrowers already in default, around another 4 million are 91 to 180 days late on their loan payments. Less than 40% of all borrowers are current on their student loans, department officials said.

For borrowers in default, one step to avoid wage garnishment is to get into loan rehabilitation, said Betsy Mayotte, president of The Institute for Student Loan Advisors.

Borrowers must ask their loan servicer to be placed into such a program. Typically, servicers ask for proof of income and expenses to calculate a payment amount. Once a borrower has paid on time for nine months in a row, they are taken out of default, Mayotte said. A loan rehabilitation can only be done once.