US restarts collections on defaulted student loans: More than 5 million affected

Starting this Monday , May 5, 2025 , the U.S. Department of Education, through its Federal Student Aid (FSA) office , has officially reactivated the collection process for federal student loans that are in default . This measure, which definitively ends the suspensions implemented during the COVID-19 pandemic, will directly impact more than 5 million borrowers across the country.

The pause on federal student loan payments and collections, in effect since March 2020, formally ended months ago, and regular payments resumed for most borrowers in October 2023. However, there was an "on-ramp" period that offered some protections against the most negative consequences of default, which ended on September 30, 2024.

Now, the federal government is fully reclaiming its authority to recover defaulted debts. This includes using the Treasury Offset Program, which allows for:

• Withhold federal tax refunds.
• Seize up to 15% of disposable wages.
• Offset debt with federal benefits, such as Social Security (retirement and disability) payments.

In addition, it is noted that direct wage garnishment proceedings could be initiated later this summer, with prior notification to the affected borrowers.

Education Secretary Linda McMahon has emphasized the administration's position, declaring that "American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies" and stressing that debts must be repaid. She has made it clear that there will be no further massive student debt forgiveness, marking a firm policy line that prioritizes the recovery of owed funds.

The Department of Education states that it has notified borrowers in default and urges them to take steps to regularize their situation and avoid further penalties. There are resources available to do so:

Contact the Default Resolution Group: To set up monthly payment plans.

Income-Driven Repayment (IDR) Plans: Options like the SAVE plan can reduce your monthly payment, even to $0, depending on your income and family size.

Loan Rehabilitation: A program that allows you to exit default after making a series of agreed-upon payments.

Online Tools: The Loan Simulator and the virtual assistant Aiden.

Loan Servicers: Hours have been extended to provide support. It is critical that borrowers update their contact information both on StudentAid.gov and with their loan servicer to receive important communications.

"Debts don't disappear and must be paid by borrowers." – Adapted from a statement by the Education Department.

The resumption of these collection measures represents a significant economic strain for millions of Americans. Defaulting on student loans not only entails the possibility of foreclosure, but also severely damages credit history, making it difficult to access other types of financing such as mortgages or car loans. This situation could have ripple effects on consumption and the financial stability of affected households, in a context where mortgage rates already exceed 6%.

Other relevant financial news:

• Mortgages: Rates in the US above 6% make homeownership difficult.
• Cryptocurrencies: Bitcoin (BTC) remains in the $94,000–$96,000 USD range. Stablecoin regulation in the US remains a topic of interest.
• Investments: Real estate investment options persist, although with trends

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