Student Loan Default: What to Do Before Collections Restart

• Your federal loans default after 270 days without payment. Once that happens, garnishment and tax refund seizure can hit fast.

• You can’t use IDR plans when you’re in default, so you’ll need to consolidate or rehabilitate before lowering payments or qualifying for forgiveness.

• Collections restart May 5, 2025. With Fresh Start gone, your best chance of stopping wage garnishment is to act now.

Federal student loan collections, including wage garnishments and tax refund seizures, are set to restart on May 5, 2025.

After four years of confusing pauses, shifting rules, and empty promises of debt relief, the government is now restarting aggressive collection efforts.

If you’ve been frustrated by unclear instructions, delayed applications, or unresponsive servicers, there’s a reason: the student loan system itself is broken. The chaos isn’t your fault, but it could quickly become your problem.

This guide will quickly help you:

• Confirm if your loans are in default

• Understand exactly how collections threaten your paycheck and tax refunds

• Take clear steps to get out of default and protect your finances now that Fresh Start is gone

If you have a federal student loan and you’ve gone more than 270 days (about 9 months) without making a payment, your loan is likely in default. But default doesn’t happen automatically, and many borrowers aren’t even aware they’re in it until collections start.

Because private collection agencies are no longer involved, your loans in default will now be handled directly by the Department of Education’s Default Resolution Group.

To check if you’re in default:

• Start with your loan servicer. Ask if your loan is delinquent, already in default, or recently transferred to the Default Resolution Group for collections.

• Log into StudentAid.gov. Look for loans marked as “in default” or “assigned to collections.”

But don’t assume you’re in the clear just because your credit report looks clean. Some defaulted student loans don’t show up on your credit report, especially if they’re older, previously rehabilitated, or transferred between servicers. We’ve seen borrowers hit with garnishment or tax refund seizure over a student loan they thought was gone 20 years ago.

Note: Not all missed payments mean you’re in default—at least not yet. You start out delinquent, and over time, that turns into default. Use these resources to get clear on the difference, what triggers each stage, and why it matters:

• Delinquency and Default in Student Loans

• What is a Delinquent Student Loan

If you’re dealing with a private loan, like one from Sallie Mae or SoFi, default can happen much faster, sometimes after just 90 days of missed payments. From there, it’s not just collections. You could face lawsuits, wage garnishment (through a court order), and credit damage.

Unlike federal loans, there’s no rehab or IDR. But there are options:

• How private student loan default works

• How Sallie Mae handles default

• Refinancing after default

• How to deal with a student loan judgment

Before you can fix the problem, you need to know who holds your loans, how much you owe, and what options are available. That starts with checking your status on StudentAid.gov and myeddebt.gov, the official site for resolving federal loans in collections.

Not sure where to begin? These guides can help:

• How Do I Find My Defaulted Student Loans

• Default Student Loan Assistance

How Many Borrowers Are Still in Default?

Millions of borrowers stayed in default, even during the payment pause.

From 2020 to 2024, federal loans in default dropped only slightly. Now, with collections restarting on May 5, 2025, millions still face wage garnishment, tax refund seizure, and more.

This chart shows how serious the problem still is:

Once your federal loans enter default, the Department of Education, through its Default Resolution Group, can move fast to collect.

That means:

• Wage garnishment (up to 15% of your paycheck)

• Tax refund seizure through the Treasury Offset Program

• Social Security benefit offset

• Negative credit reporting

• Loss of eligibility for repayment plans and forgiveness programs

• A CAIVRS flag that blocks FHA, VA, and USDA mortgages and other federal aid

You may not face all of these at once, but once you’re in default, the government has the authority to use any of them. And they don’t always give a clear warning.

Not sure what’s already in motion? Start here: How to Get Out of Student Loan Default Fast

Want the full breakdown of how long the government can come after you? These guides go deeper:

• What Happens When Student Loans Go Into Collections?

• Student Loan Statute of Limitations

• What Does Student Loan Permanently Assigned to Government Mean?

Need to Know More? Default Doesn’t Just Hit Your Paycheck

Here’s how being in default can affect your life, money, and options, and what you can do about it:

• Can they take your bank account?

• Can your spouse’s wages be garnished?

• Will they seize your inheritance?

• Can you lose your house over it?

• Can you still get financial aid?

• Can you buy a home in default?

• Will it affect your passport?

• Can you go to jail for not paying?

Where Default Hits Hardest

Some states are hit much harder than others.

In 2024, states like West Virginia, Mississippi, and New Mexico had default rates above 12%. That can shape how aggressive collections are and what local support is available.

This map breaks down which states are struggling most:

There’s more than one way to get out of student loan default. The right option depends on what matters most to you—speed, forgiveness, or affordability.

1. Consolidation

If you need to stop collections fast, consolidation is often the quickest way out of default. You apply for a Direct Consolidation Loan and agree to repay under an income-driven repayment plan.

• Best for: Borrowers who need to stop wage garnishment or tax refund seizure quickly

• Timeline: 30–60 days

• Tradeoff: May erase prior credit toward IDR forgiveness or Public Service Loan Forgiveness

2. Rehabilitation

Rehabilitation is slower, but it keeps your forgiveness history intact, which helps if you’re close to forgiveness or have older IDR credit. It works by making on-time payments through a student loan rehabilitation program to exit default.

• Best for: Borrowers focused on forgiveness or those recovering from long-term default

• Timeline: 9 months (5 months to stop garnishment, 9 months to fully exit default)

• Tradeoff: Garnishment continues for the first five payments

3. Settlement

You may be able to negotiate a payoff amount for less than what you owe. But federal student loan settlements usually require a large lump sum, often 85–90% of the balance.

• Best for: Borrowers who can pay a lump sum and want a clean break

• Timeline: 1–6 months, depending on the collector

• Tradeoff: No forgiveness credit; often unaffordable for most borrowers

If you’re just looking for the fastest way to get out of default, we break that down step-by-step here: How to Get Out of Student Loan Default Quickly

Note: When Biden was in office, the Education Department allowed borrowers to consolidate defaulted loans and keep their IDR forgiveness progress through a one-time adjustment. That flexibility may change under the new administration.

Related:

• Student Loan Rehabilitation vs. Consolidation

• Can You Negotiate Student Loan Payoff

• How to Get Student Loan Collection Fees Waived

Already got a warning letter? Facing garnishment or tax refund seizure? There’s still time to act, but not much.

Once you’re in default, the government must send written notice before starting collections. But those notices can be easy to miss, especially if your contact information is outdated or your loan was recently transferred.

If you’ve been contacted by the Default Resolution Group, you may still be able to:

• Stop a federal administrative wage garnishment before it starts

• Prevent your tax refund from being seized through the Treasury Offset Program

• Respond to a lawsuit or administrative action before a judgment or garnishment is finalized

Related:

• How to Get Student Loans Out of Collections

• What to Do After Getting a Letter from the Default Resolution Group

Once you’re out of default, your federal loans return to good standing, unlocking crucial benefits and protections.

You’ll regain access to:

• Income-driven repayment plans: The Education Department plans to resume processing IDR applications by May 10, 2025, but significant backlogs may delay enrollment.)

• Forgiveness programs like Public Service Loan Forgiveness and IDR-based cancellation

• Deferment and forbearance options if your finances change

• Eligibility for financial aid if you plan to return to school

Default isn’t the end—it’s a detour. With collections resuming on May 5, 2025, taking swift action is essential.

The current administration has explicitly ruled out mass loan forgiveness and emphasized borrower responsibility. Given ongoing court decisions and shifting Department of Education policies, acting quickly to understand your options isn’t just wise—it’s necessary.

Need personal guidance?

Our student loan experts can help you cut through the complexity, understand your best options, and take fast action to avoid collections.

Book a call with one of our student loan experts.