Student Loan Defaulted? Here’s What You NEED to Know Before the Collections Start!

So, if you’ve got student loans in default, you’ve probably noticed that things have shifted now that debt collection is back. After the COVID-related pause, the government has started collecting again as of May 2025. If you’re one of the millions of people with defaulted loans, you might be wondering what all this means for you. Let’s break it down in simple terms.

What Does It Mean to Be in Default?

Before we dive into what’s happening now, let’s make sure we’re on the same page about what default actually means. When you’re in default on a federal student loan, it’s because you’ve missed payments for around 9 months (about 270 days). At that point, the loan goes into default, and the government can start taking steps to get that money back, including things like garnishing your wages or taking your tax refunds. Basically, it’s when your loan goes from bad to worse.

What Happens If You’re in Default?

Now that collections are up and running again, if you’re in default, here’s what you could face:

1. Wage Garnishment

If the government goes after your loan, one of the first things they can do is garnish your wages. That means your employer will take part of your paycheck and send it straight to pay off your loans. It’s money you’d normally use for things like rent or food, and now it’s going straight to your loan servicer instead.

2. Tax Refund Seizure

If you’ve been hoping to get a nice tax refund, you might be in for a surprise. If you’re in default, the government can intercept that refund and apply it directly to your student loan balance. It’s a real blow, especially if you were planning on using that money to cover other expenses.

3. Social Security Benefits Taken

If you’re relying on Social Security, this could hit you hard. The government can take part of your Social Security benefits to help pay off your student loans. This is especially tough for older borrowers who might be depending on that income for their day-to-day needs.

4. Damage to Your Credit

A default will also mess with your credit score. We’re talking about a big hit here — one that could make it harder to get approved for loans, credit cards, or even rent an apartment. It can really mess up your financial future, which is why it’s important to get ahead of this if you can.

How Many People Are Affected by This?

You’re not alone in this, trust me. Millions of borrowers are currently in default, and now that collections are back, it’s a big deal. There are around 5 million borrowers who are in default right now, and another 4 million who could default soon if they don’t act. So, yeah, there’s a lot of people in the same boat, which is why it’s even more important to take action if you’re one of them.

What Can You Do If You’re in Default?

So, what can you do to get out of default and avoid the worst-case scenario? The good news is there are ways out, and you’ve got options. Here’s how to get back on track:

1. Loan Rehabilitation

One option to get out of default is loan rehabilitation. This is basically where you agree to make a series of affordable payments for a set period of time. Once you’ve made those payments, your loan will come out of default and your credit report will get a fresh start (no more negative marks). It’s a great option to consider if you want to clean up your loan status and get back on track.

2. Loan Consolidation

Another option is loan consolidation. This is where you take your defaulted loan and roll it into a new loan that combines other federal loans. Consolidating your loans can help you regain access to more affordable repayment plans, including income-driven plans, and it can stop collection efforts like garnishment or refund seizures. Just keep in mind that there’s a bit of a backlog with loan consolidation applications, so it might take some time to process.

3. Income-Driven Repayment Plans

If your payments are too high and you’re struggling to make them, you can apply for income-driven repayment plans. These plans adjust your monthly payments based on your income and family size. They can make things way more manageable if you’re going through a tough financial patch. However, there’s a waiting list for these plans right now, so you might need to wait a bit for approval.

What Should You Do Right Now?

If you’re reading this and realizing you’re in default, the key thing is don’t wait. The sooner you take action, the better. Here’s what you need to do:

• Reach out to your loan servicer: Call them up or go online to find out what your options are. They can help you figure out whether rehabilitation, consolidation, or something else is the best choice for you.

• Look into loan rehabilitation or consolidation: These are probably your best bets to get out of default, and they can help you avoid things like wage garnishment and tax refund seizures.

• Check out income-driven repayment: If your monthly payments are just too much to handle, this could be the solution you’re looking for. But remember, there’s a backlog, so don’t wait too long to apply.

Where Can You Get Help?

You don’t have to handle this alone. Here are a few places to turn to for help:

• Default Resolution Group (DRG): This group specializes in helping borrowers who are in default. They’ll walk you through the process and help you figure out the best solution.

• Your loan servicer: They’re the ones who manage your loans, and they can guide you on how to get out of default.

• Financial advisors or legal aid: If you’re really stuck, you can talk to a financial advisor or get legal help. There are experts who can help you navigate these tricky waters.

The restart of debt collection on student loans is a big deal, and it’s something that can feel overwhelming. But don’t panic — you have options to get out of default and avoid the worst consequences. Whether it’s loan rehabilitation, consolidation, or an income-driven repayment plan, taking action now is the best way to get back on track.

Just remember, you’re not in this alone. There are millions of borrowers going through the same thing, and there’s help available. Reach out to your loan servicer, explore your options, and take the first step toward getting back on track.