Lana Oconnell
Student loan repayment has been a hot topic in recent years, with the COVID-19 pandemic causing a pause in payments for over three years. As of May 2025, the U.S. Department of Education has announced it will resume collections on defaulted federal student loans, with almost 1.9 million borrowers urged to make monthly payments, enroll in income-driven repayment plans, or sign up for loan rehabilitation. This has sparked concerns about high delinquency rates and the financial struggles of borrowers. President Trump's recent tax and spending law has also brought significant changes to the federal student loan system, affecting repayment plans and imposing new lifetime borrowing caps. With the introduction of new plans like RAP and the phasing out of older ones, the landscape of student loan repayment is evolving, leaving borrowers with important decisions to make about their financial futures.
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What You'll Learn
Student loan repayment plans
The US Department of Education has been making efforts to improve federal student loan repayment options for borrowers. As part of this, the Department is urging borrowers in the SAVE Plan to transition to a legally compliant repayment plan, such as the Income-Based Repayment Plan. This is because borrowers in the SAVE Plan cannot access important loan benefits and make progress toward loan discharge programs authorised by Congress.
The Department has also been working to improve the Income-Driven Repayment (IDR) plan application process, which has been affected by a processing pause put in place by the previous administration. Borrowers switching from the SAVE Plan to another IDR plan can expect quick and timely processing of their applications. The Department has also developed resources and support to assist borrowers in selecting the best repayment plan, such as the Loan Simulator and AI Assistant (Aiden).
In addition, the Department resumed collections on defaulted federal student loans on May 5, 2025, after a five-year hiatus. FSA, the Office of Federal Student Aid, has been communicating with borrowers in default to make them aware of their options and urging them to take action, such as enrolling in an income-driven repayment plan.
It is important to note that a federal district court entered an injunction in April 2025, which will result in interest being charged on impacted loans starting on August 1, 2025. Borrowers in the SAVE Plan will be responsible for making monthly payments that include any accrued interest as well as their principal amounts.
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Student loan forgiveness
The US Department of Education has announced that it will resume collections of defaulted federal student loans. Since March 2020, there has been a pause on collecting defaulted loans, but this will change from May 5, 2025, onwards. The Federal Student Aid (FSA) will begin the Treasury Offset Program, which will see all borrowers in default contacted and urged to make monthly payments, enroll in an income-driven repayment plan, or sign up for loan rehabilitation.
The FSA is committed to providing clear and helpful information to borrowers about their repayment options. In the next two months, the FSA will engage in a communications campaign to encourage borrowers to repay their loans and select the best repayment plan for their circumstances. This will include email and social media outreach, as well as the introduction of new resources such as the Loan Simulator and AI Assistant (Aiden).
Borrowers can also expect an enhanced Income-Driven Repayment (IDR) process, which will simplify the enrollment process and remove the need for annual income recertification. The FSA will also resume processing applications for enrollment in repayment plans, such as Income-Based Repayment, Income-Contingent Repayment, or PAYE, which have been on hold since August 2024.
While the resumption of loan collections may be concerning for some, the FSA is taking steps to assist borrowers in managing their debt. With improved resources, repayment plan options, and clear communication, borrowers can make informed choices about repaying their federal student loans.
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Student loan delinquency
The resumption of federal collection activities in May 2025 has brought the issue of student loan delinquency into sharp focus. The U.S. Department of Education, through its Office of Federal Student Aid (FSA), has resumed collections on defaulted federal student loans, which had been paused since March 2020. This resumption of collections has had a significant impact on borrowers who are already struggling financially.
The consequences of student loan delinquency can be severe. Borrowers who are delinquent on their student loans often experience significant drops in their credit scores, making it difficult to secure future loans or favourable interest rates. Additionally, delinquent borrowers may face penalties, late fees, and negative reporting to credit bureaus, further damaging their financial standing.
To address this issue, the FSA has committed to providing clear and timely information to borrowers about their payment options. They plan to conduct a comprehensive communications campaign to engage borrowers, emphasizing the importance of repayment and providing resources to assist them in selecting the best repayment plan for their circumstances. The FSA is also enhancing its Income-Driven Repayment (IDR) process, simplifying the enrollment process and eliminating the need for annual income recertification.
It is important for borrowers who are struggling with their loan repayments to take proactive steps and seek assistance. They should contact their loan servicers to discuss alternative repayment plans, loan rehabilitation, or other options that may provide relief. By staying in communication with their lenders and seeking available support, borrowers can work towards managing their debt and avoiding the negative consequences of delinquency and default.
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Student loan repayment during COVID-19
The Coronavirus pandemic has made it difficult for millions of Americans to manage their student loans. The CARES Act, passed by Congress, provided temporary relief for federal student loan borrowers, but there was uncertainty about how to manage student loans during this challenging time. The Act covered the period from March 13, 2020, when the national emergency was declared, until September 30, 2020.
The CARES Act only applied to federal student loan borrowers who were actively repaying their loans. If a borrower's grace period ended during the period covered by the Act, they would enter repayment and receive the full relief available under the Act from the date of repayment. The Act did not provide relief for borrowers with private student loans, although some states and lenders offered protections for these borrowers.
Borrowers who made payments during the payment suspension period may request a refund. These payments will first be applied to any outstanding interest accrued before the CARES Act and then to the loan's principal balance. The suspension provided by the CARES Act should not negatively impact borrowers' credit scores.
The U.S. Department of Education resumed collections on defaulted federal student loans on May 5, 2025, after a five-year hiatus. The Department has contacted borrowers to remind them of their legal obligation to repay their loans and the benefits of regular repayment. The Department is also committed to keeping borrowers updated with clear information about their payment options and has launched tools to assist borrowers in selecting the best repayment plan.
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Student loan repayment options
The US Department of Education has announced that it will resume collections of defaulted federal student loans. This comes after a five-year hiatus on collections, with the last one taking place in March 2020.
The Federal Student Aid (FSA) office is committed to providing borrowers with clear information about their repayment options. FSA has also launched an enhanced Income-Driven Repayment (IDR) process, simplifying the time it takes for borrowers to enrol in IDR plans. Borrowers can use the Loan Simulator to compare available repayment plans, estimate monthly payments, and determine repayment eligibility.
For borrowers in the SAVE Plan, loan balances will grow when interest starts accruing, and they will be responsible for making monthly payments that include accrued interest and principal amounts. The Department urges borrowers in the SAVE Plan to transition to a legally compliant repayment plan, such as the Income-Based Repayment Plan.
The Department has also provided resources and support to assist borrowers in selecting the best repayment plan, such as the new Loan Simulator, AI Assistant (Aiden), and extended servicers' call times.
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Frequently asked questions
Yes, student loan payments have resumed as of October 2023, after a three-year pause during the COVID-19 pandemic.
There are several options available for those who are unable to make their student loan payments. Some borrowers may be eligible for forbearance or deferment, which allows for a temporary postponement or reduction of payments. There are also income-driven repayment plans, such as Pay As You Earn (PAYE), where payments are based on a percentage of your income, as well as loan forgiveness options.
President Trump's new tax and spending law brings significant changes to the federal student loan system. The Department of Education has scrapped most existing repayment plans, and new lifetime borrowing caps have been imposed. Additionally, the options for new borrowers have been reduced from seven plans to two: a standard repayment plan and a new income-based repayment plan.
