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For roughly the past five years, federal student loan borrowers who fell behind on their bills didn’t need to worry about the usual consequences, including the garnishment of their wages and retirement benefits.
That will soon change.
In a U.S. Department of Education memo obtained by CNBC, dated Jan. 13, a top Biden administration official laid out for the first time details of when collection activity may resume. In some cases, borrowers could feel the pain as early as this summer.
By late 2024, the number of federal student loan borrowers in default was roughly 5.5 million, the department’s memo said.
Here’s what borrowers struggling to pay their bills need to know about the risks ahead.
Different garnishments to resume at different times
Federal student loan borrowers who’ve defaulted on their loans may see their wages garnished starting in October of this year, according to the Education Department memo. Social Security benefit offsets could resume as early as August.
It may be up to the new administration under President Donald Trump to decide how to handle the resumption of collections, experts said. However, the department under President Joe Biden took some steps to help defaulted borrowers.
Later this year, for the first time, borrowers in default should be able to enroll in the Income-Based Repayment plan “and have a pathway to forgiveness,” the memo says.
Currently, federal student loan borrowers need to exit default before they can access any of the income-driven repayment plans, including the IBR. These plans aim to set borrowers’ monthly bills at a number they can afford, and many end up with a $0 monthly payment.
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Meanwhile, the Biden administration also moved to protect a higher amount of people’s Social Security benefits from the department’s collection powers. When the consequences of defaults resume, those with a monthly Social Security benefit under $1,883 should be able to protect those benefits from offset, compared with the current protected amount of $750 in place today.
“Available data suggest that these actions will effectively halt Social Security offsets for more than half of affected borrowers and reduce the offset amount for many others,” the memo said.
The White House and the U.S. Department of Education did not respond to a request for comment on how the Trump administration plans to handle those measures.
What borrowers can do
Borrowers who are already in default should contact their loan servicer “right away” to talk about resolving the issue, said Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit.
Someone can get out of default on their student loans through rehabilitating or consolidating their debt, Mayotte said.
Rehabilitating involves making “nine voluntary, reasonable and affordable monthly payments,” according to the U.S. Department of Education. Those nine payments can be made over “a period of 10 consecutive months,” it said.
Consolidation, meanwhile, may be available to those who “make three consecutive, voluntary, on-time, full monthly payments.” At that point, they can essentially repackage their debt into a new loan.
If you don’t know who your loan servicer is, you can find out at Studentaid.gov.
Those who aren’t already in default should contact their loan servicer to avoid that outcome, Mayotte said. You may be able to lower your monthly payments on an income-driven repayment plan or pause your payments through a deferment or forbearance.