Lana Oconnell
If you have missed a payment on your federal student loan, it is important to take action to avoid defaulting. Federal student loans are considered in default after 270 days of non-payment, after which the Department of Education (DoE) or a guaranty agency may take control of the loan. The DoE will then begin collection activities, which can include withholding income from tax refunds, federal benefit payments, or wages. To avoid this, borrowers can contact their loan servicer to discuss alternative payment plans, or to apply for a deferment or forbearance. If you have already defaulted, you can contact the DoE's Default Resolution Group to discuss loan rehabilitation, which involves making nine voluntary and reasonable payments within 20 days of the due date over 10 months.
| Characteristics | Values |
|---|---|
| Default on federal student loans | Occurs when you haven't paid in at least 270 days |
| Debt collection | The federal government can collect the debt by garnishing your wages, federal tax refund, or federal benefit payments |
| Consequences of ignoring debt collection | The loan servicer could file a lawsuit, and if they win, you might have to pay the outstanding amount plus attorney and collection fees |
| Getting out of default | Contact the DoE's Default Resolution Group, ask for a loan rehabilitation agreement, or consolidate your loans |
| Loan rehabilitation | Taken out of default status after making nine on-time, reasonable, and affordable payments |
| Repayment | If you can afford to pay off your defaulted federal loan, this is the fastest way to settle your debt |
| Consolidation | Defaulted loans are paid off by a new loan with new repayment terms, and you can enroll in one of the U.S. Department of Education's alternative payment plans |
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What You'll Learn
Federal student loan collections resume
Federal student loan collections are set to resume on May 5, 2025, after a five-year hiatus since the start of the COVID-19 pandemic in March 2020. This resumption of collections will impact borrowers who have not made a monthly payment in over 270 days for federal loans, which is the threshold for default.
With the upcoming resumption, borrowers in default will receive communications from the Federal Student Aid (FSA) about restarting monthly payments and loan rehabilitation options. The FSA will also provide information through its website, StudentAid.gov, and a communications campaign to emphasize the importance of repayment.
If you are facing challenges with federal student loan collections, there are several options available:
- Repayment Plans: You can work with your loan servicer to explore various repayment plans, such as income-driven repayment plans that consider your current income. These plans can help make your payments more manageable.
- Loan Rehabilitation: Loan rehabilitation agreements allow you to make a certain number of consecutive, on-time payments to get out of default. This option can help improve your credit score.
- Consolidation: You may consider consolidating your federal student loans into a Direct Consolidation Loan. This option combines multiple federal education loans into a single new loan, simplifying repayment and potentially lowering monthly payments.
- Forbearance: If you are facing temporary financial difficulties, forbearance allows you to temporarily pause or reduce your payments. However, this option may not contribute to loan forgiveness or paying back your loan.
It is important to stay in communication with your loan servicer or their verified collections contacts. Additionally, be cautious of scams and never pay a fee for promised debt relief or lower payments. By taking proactive steps and exploring these options, you can work towards managing your federal student loan debt effectively.
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What to do if your loan is in collections
If your loan is in collections, the first step is to determine whether you have federal or private student loans. The U.S. government issues federal student loans, while private student loans are issued by lenders such as banks, credit unions, and online lenders. You can check your last billing statement to identify your loan type.
For federal student loans, the Department of Education (DoE) or a guaranty agency may hold the loan. You can contact the DoE's Default Resolution Group to determine the status of your loan. The federal government can collect on loan obligations by withholding funds from your tax refund, federal benefit payments, or wages.
If you have private student loans, the lender may have sent your debt to a collection agency or collector. The collector will contact you to collect the amount owed. Private lenders may push loans into collections after 90 days, but this timeline varies.
Regardless of loan type, it is important to understand the consequences of ignoring a loan in collections. The loan servicer could file a lawsuit, and if they win, you may have to pay the outstanding amount plus additional costs such as attorney and collection fees. Debt collectors can also garnish your wages, take money from your bank accounts, or place a lien on your property.
To address a loan in collections, you can:
- Catch up on loan payments if possible.
- Work out a new payment arrangement with your loan servicer, such as an income-driven repayment plan.
- Contact the DoE's Default Resolution Group if you've missed payments for more than 270 days.
- Ask for a loan rehabilitation agreement, which removes the loan from default. This typically involves making nine voluntary and timely payments over ten months.
- Prepare your budget for collections if you cannot avoid them, knowing that the government can collect debt through various means.
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How to avoid defaulting on federal student loans
Defaulting on federal student loans can have serious consequences, including wage garnishments, withheld tax refunds, and a lower credit score. Here are some ways to avoid defaulting:
Catch up on payments
If you have missed a payment on your federal student loans, the first step is to catch up on the loan payments. This may involve contacting your loan servicer to discuss your options and exploring alternative repayment plans.
Work out a new payment arrangement
If it is not possible to simply catch up with your payments, you may be able to negotiate a new arrangement. Contact your loan servicer to determine what options are available. For example, you might qualify for an income-driven repayment plan, such as the Saving on a Valuable Education (SAVE) plan, which offers unique benefits to lower payments for borrowers.
Contact the Default Resolution Group
If you have already missed payments for more than 270 days, you should contact the Department of Education's (DoE) Default Resolution Group. This group will direct you to the current loan servicer and can provide guidance on the next steps.
Ask for a loan rehabilitation agreement
Loan rehabilitation can remove the loan from default. As the borrower, you must commit to making nine voluntary and reasonable payments within 20 days of the due date over 10 months. This demonstrates your willingness to rectify the situation and can help improve your credit score.
Understand the consequences and be proactive
It is important to understand the potential consequences of defaulting on federal student loans. These include wage garnishments, withheld tax refunds, and negative impacts on your credit score. Being proactive and communicating with your loan servicer is crucial to finding a solution and avoiding the severe consequences of default.
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The federal government's collection methods
Federal student loans are financed by the American people. As of 2024, 42.7 million borrowers owe more than $1.6 trillion in student debt, with more than 5 million borrowers not having made a monthly payment in over 360 days. This has resulted in a fiscal cliff, with the federal student loan portfolio at risk of default.
The US Department of Education's Office of Federal Student Aid (FSA) is responsible for collecting defaulted federal student loans. The FSA conducts its collection activities under the Higher Education Act, providing borrowers with sufficient notice and the opportunity to repay their loans. The FSA also offers borrowers resources and support in selecting the best repayment plan for their situation.
If a borrower defaults on a federal student loan, the federal government can employ several methods to collect the debt:
- Wage garnishment: The government can withhold a portion of the borrower's wages to repay the loan.
- Tax refund offset: The Treasury Offset Program allows the government to withhold income from the borrower's tax refund.
- Federal benefit payments: Funds from federal benefit payments can be withheld to repay the loan.
- Collection agencies: The Department of Education (DoE) or a guaranty agency may hold the loan, and a collection agency may be engaged to collect the debt on their behalf.
It is important to note that the government will provide notice and communicate with borrowers before initiating these collection methods. Additionally, borrowers who are struggling to make payments can contact the DoE's Default Resolution Group to discuss repayment options and explore alternatives such as income-driven repayment plans or loan rehabilitation agreements.
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Loan rehabilitation agreements
Loan rehabilitation is a one-time opportunity that improves the borrower's credit score by removing the default from their credit report. It also reduces collection costs. However, late payments leading to the default will remain on the credit report.
If you want to rehabilitate your loan, you must contact the agency handling your qualified account and inform them of your intention. If you do not know the name and contact information of the collection agency, you can reach out to your lender, and they will provide you with the necessary details.
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Frequently asked questions
A defaulted federal student loan is one on which you have not made a payment in 270 days or more.
If you default on your federal student loan, the government may garnish your wages, seize money from your federal tax refunds or Social Security benefits, and you will no longer be eligible for new federal student loans or grants. Defaulting on your loan will also hurt your credit score.
If you've defaulted on your federal student loan, you can contact the Department of Education's Default Resolution Group to determine the status of your loan and discuss options for loan rehabilitation.
To rehabilitate your loan, you must make nine voluntary, consecutive, reasonable, and affordable payments within 20 days of the due date over 10 months. This will remove the loan from default status.
