Student loan shock: Five million Americans face wage garnishment and tax seizures starting May 5

Over five million federal student loan borrowers who have been in default for years are set to face mandatory debt collection beginning May 5, 2025, as the U.S. Department of Education resumes recovery efforts halted during the COVID-19 pandemic. The move marks a dramatic escalation in the federal government’s approach to addressing mounting student loan arrears, bringing an end to years of administrative forbearance and protections for defaulted borrowers.

The restart of collections comes amid turbulence within the Office of Federal Student Aid (FSA), which has faced budgetary constraints and workforce reductions, triggering concerns about the agency’s ability to adequately support borrowers reentering repayment.

Why are mandatory student loan collections resuming now?

The Department of Education’s decision to resume debt recovery stems from the expiration of emergency pandemic-era protections that suspended collections for defaulted borrowers. These protections were originally implemented in March 2020 under the CARES Act, which paused payments and collections to cushion economic hardship during the crisis.

However, following several extensions and the eventual Supreme Court ruling striking down President Joe Biden’s broader loan forgiveness plan, the department is under mounting pressure to restore regular servicing operations and rein in defaulted loan balances.

As of April 2025, more than five million borrowers remain in default, with another four million deemed delinquent, having missed payments for over 90 days. Collections will initially involve Treasury Offset Program actions, which permit garnishment of federal tax refunds, Social Security benefits, and other government payments.

Notices regarding wage garnishment will follow in the coming months, marking a phased return to aggressive debt recovery tactics last seen before the pandemic.

How is the government collecting from borrowers in default?

The primary mechanism for collections will be the Treasury Offset Program, a longstanding federal tool used to recoup outstanding government debts. Under this program, the Department of Education can instruct the U.S. Treasury to intercept income tax refunds, child tax credits, and Social Security payments to satisfy unpaid student loans.

Additionally, the department will notify employers to begin withholding a portion of defaulted borrowers’ wages, a process known as administrative wage garnishment.

Borrowers affected by these actions will receive advance notice and are entitled to appeal or request hardship exemptions. However, recent layoffs at FSA may create bottlenecks in the appeals process, raising concerns about due process and administrative delays.

What options do defaulted borrowers have before collections begin?

In light of the looming collections restart, federal officials are encouraging borrowers in default to contact the Default Resolution Group or their loan servicer immediately to explore available options.

Borrowers may still avoid collections through the Fresh Start initiative, launched in 2022, which allows individuals in default to reenter repayment in good standing without penalty. This program temporarily waives many of the barriers historically associated with loan rehabilitation, including the requirement to make consecutive on-time payments before returning to current status.

Another option is to enroll in income-driven repayment (IDR) plans, which adjust monthly payments based on household income and family size. The Biden administration has recently launched the SAVE plan (Saving on a Valuable Education), which replaces the REPAYE plan and provides one of the lowest payment options among IDRs.

However, accessing these pathways requires timely communication with loan servicers, many of whom are grappling with capacity constraints due to funding cuts and staff layoffs.

How have recent staff cuts at the Office of Federal Student Aid impacted servicing?

The Department of Education has confirmed that scores of employees from the FSA have been let go or reassigned due to fiscal constraints. The agency has operated under a continuing resolution for several months, with no long-term budget secured by Congress.

This has directly impacted its ability to hire, retain, and train staff for borrower outreach, case resolution, and administrative functions tied to repayment support. Many borrowers have reported long hold times, inconsistent communication, and unclear instructions during the recent student loan repayment restart in October 2023.

Advocates warn that the situation could worsen with the collections process, which tends to generate high call volumes and urgent disputes. Former Under Secretary of Education James Kvaal stated that reduced servicing capacity could severely undermine borrower protections and delay resolution for those facing hardship.

What are the broader economic and political implications of this policy change?

The resumption of mandatory collections may provide a modest revenue boost to the federal government, but economists argue it could also dampen consumer spending and strain lower-income households already battling inflation and housing costs.

Consumer protection groups, including the Student Borrower Protection Center, have raised alarms that aggressive collection tactics disproportionately affect minority and economically vulnerable borrowers. Seizures of tax refunds and Social Security benefits, they argue, undermine retirement security and financial stability for millions.

The Biden administration has attempted to thread the needle between reestablishing repayment accountability and providing targeted relief through actions like the SAVE plan and the Public Service Loan Forgiveness (PSLF) expansion. Nonetheless, critics see the May 5 collections deadline as a stark pivot away from the leniency exhibited during the pandemic.

How does this compare to past collection cycles?

Historically, student loan collections have been a significant pain point for borrowers. Prior to the pandemic, nearly one in five borrowers with loans in default faced aggressive recovery actions, including garnishment and tax refund seizures.

The CARES Act temporarily froze these measures, offering financial relief but also prompting debates around the long-term viability of federal student lending. In the absence of structural reform, the return to traditional collection methods has rekindled criticism of the system’s punitive nature.

While the Fresh Start initiative aims to provide a one-time reset, advocates say it should be accompanied by systemic changes in how defaults are reported, managed, and rehabilitated.

What should borrowers do now?

With the May 5 deadline approaching, borrowers in default are urged to take proactive steps. This includes checking their loan status via the StudentAid.gov portal, confirming their contact information with servicers, and exploring eligibility for Fresh Start or IDR plans.

Given the strain on the FSA’s infrastructure, experts recommend starting the process early to avoid rushed decisions or missed communications. Those unsure of their status or options should seek assistance from certified credit counselors or nonprofit debt advocacy groups.

This moment marks a critical juncture for federal student loan management. Whether the transition back to collections fosters accountability or compounds distress will depend on the effectiveness of borrower outreach and the resilience of the servicing ecosystem.