How to Get Student Loans Out of Default (2025 Guide)

• Student loan collections restart May 5, 2025. Defaulted borrowers face wage garnishment, tax refund seizure, and Social Security offsets.

• You can get out of default through student loan rehabilitation or consolidation, depending on your timeline and forgiveness goals.

• If your wages are already being garnished, you can’t consolidate. Only rehabilitation will stop it after 5 qualifying payments.

Federal collections on defaulted student loans restart May 5, 2025. You still have time to fix it if you act now. Your best options are student loan rehabilitation (a 9-month payment plan that can clean up your credit) or student loan consolidation (a faster reset with trade-offs).

If you don’t act, you could face consequences like garnished wages, seized tax refunds, and Social Security offsets. Here’s what you need to know to get your student loans back in good standing.

After a five-year pause, federal collections are back. If your loans are in default, here’s what that means:

• Wage Garnishment: Up to 15% of your paycheck withheld automatically

• Tax Refund Seizure: Federal and state refunds rerouted to your loan balance

• Social Security Offset: Retirement or disability checks reduced

• Damaged Credit: Default stays on your credit report for up to 7 years

If this caught you off guard, you’re not imagining it. These changes came quickly, and they affect millions of borrowers. But there’s still time to get ahead of collections if you act now.

Related:

• Can 401k Be Garnished for Student Loans?

• Can I Go to Jail for Not Paying a Student Loan?

• Can My Spouse’s Wages Be Garnished for My Student Loans?

Here’s how to get your federal student loans out of default quickly without making a misstep that costs you forgiveness credits or delays your restart.

1. Confirm Your Default Status

• Log in ar StudentAid.gov and check each loan’s status. You can also check the Education Department’s website for defaulted federal loans, myeddebt.ed.gov.

• Can’t access your account? Call the Default Resolution Group at 1-800-621-3115

Even if you think you’re in default, confirm it. Many borrowers have loans in different statuses, and some may already be eligible for repayment.

2. Pick the Best Path Out

Student loan rehabilitation and student loan consolidation are the two most common methods to resolve federal student loan default. Here’s how they compare:

Still not sure? Here’s the practical version:

• If you’re being garnished and need it to stop fast, consolidating student loans in default is usually faster.

• If you’re working toward forgiveness and don’t want to lose time, student loan rehabilitation protects your progress.

3. Call the Default Resolution Group

• Use plain language: “I need help getting out of default. Can you explain the steps for rehabilitation or consolidation?”

• Ask for exact payment amounts, deadlines, and any documents you’ll need to submit

4. Take Action Fast

• Decide which option fits your situation

• Submit the consolidation application or begin your rehab payments

• Save everything: agreements, payment receipts, confirmation letters

5. Confirm You’re Out of Default

• Log back into StudentAid.gov to check your updated loan status

• Once you’re out, your loans will be reassigned to a new servicer

• At that point, you can choose a repayment plan or resume your forgiveness track

Related: Defaulted Student Loans 20 Years Ago? Here’s What to Do

If you’ve got access to cash, there are other ways out. But they come with trade-offs.

Paying in full ends the default immediately. Collections stop. You regain access to financial aid, deferments, and new federal loans. But for most borrowers, that’s not realistic.

Why? Because federal student loan settlements (also called compromises) are expensive and limited. You won’t see the steep discounts you’d get negotiating private student loans. Private lenders may settle for 40% to 60% of what’s owed. The federal government doesn’t work that way.

At best, you might see:

• Collection costs on defaulted student loans waived

• Half of the outstanding interest shaved off

• Maybe 10% off the principal, if you’re lucky

And they’ll want the full settlement paid within 90 days.

This path only makes sense if:

• You’ve been in default for years

• Forgiveness isn’t on the table

• You can cover a lump sum without wrecking your retirement or savings goals

If collections have already kicked in (your paycheck’s being garnished, or your tax refund or Social Security check was taken) you still have options. But your path depends on how the government is collecting.

If your wages are already being garnished, you can’t consolidate. Your only way out is loan rehabilitation.

• You’ll need to agree to a rehab plan and make five monthly payments.

• After the fifth, garnishment should stop. You’ll then complete four more payments to fully clear the default.

• Rehab is a one-time option. If you’ve used it before, and consolidation is off the table, your choices are limited.

If your tax refund or Social Security check has already been offset, you can still consolidate.

• Once your loans are out of default, future offsets should stop.

• Prior offsets aren’t refunded unless there was a mistake, but acting fast can prevent further losses.

Getting out of default is the first step. Staying out means enrolling in a repayment plan that works with your current income, not against it.

As of April 2025, the SAVE plan is on hold due to ongoing litigation. And because SAVE was designed to replace Revised Pay As You Earn (REPAYE), that plan is effectively gone too.

Right now, the main income-driven options still available are:

• Income-Based Repayment (IBR)

• Pay As You Earn (PAYE)

• Income-Contingent Repayment (ICR)

The Department of Education is expected to resume full processing for these plans by May 10, 2025. But don’t wait until then to run the numbers.

Before you commit to loan rehabilitation or consolidation:

• Use the Loan Simulator to estimate your monthly payment under IBR or other available plans

• Plug in your most recent tax return or a recent pay stub for the most accurate estimate

If those payments are still out of reach, you may want to look into:

• Extended and graduated repayment plans

• Whether ICR makes sense for your situation

• Speaking with a student loan counselor who can help you game out your next best move

The goal isn’t just to stay out of default, but to do it without wrecking your budget or missing out on future forgiveness.

You’ve got two real paths out of default, and which one makes sense depends on your goals, your timeline, and your forgiveness progress.

If you’re not sure where to start, we can help.

Book a quick call with one of our student loan experts.

We’ll walk you through your options, help you avoid common mistakes, and map out your next steps.

Resources:

• Federal Student Aid – How to Get Out of Default. Brief guide to loan rehabilitation, consolidation, and repayment options.

• Department of Education – Collections Restart Announcement. Covers the May 5, 2025 restart of collections after the pandemic-era pause.

• Federal Student Aid – Default Loan Collections Process. Details how the government collects from defaulted borrowers, including offsets and garnishments.

• Federal Reserve – Student Loan Statistics (2024). Recent stats on student loan balances, repayment struggles, and borrower behavior.

• Federal Student Aid – National Default Rate Data. Default rates by school type and year, published by the Education Department.