If you have student loan debt, you may have heard that the federal government is restarting student loans debt collection in 2025 (something that’s been on hold since the pandemic began in 2020). If your loans are current, you’re probably in good shape. But if you have defaulted federal student loans, it’s possible your tax refund could be impacted this year.
Below, we’ll break down what’s changing, what it means if you’re behind on student loan payments, and how to get ahead of any surprises before filing your tax return.
At a glance
- The federal government restarted collecting student loan debt in 2025 after a multi-year pause due to the pandemic.
- If your federal student loans are in default, the government can garnish wages or withhold tax refunds to collect what you owe.
- You can avoid or stop debt collection through options like loan rehabilitation or loan consolidation.
Can student loans go to collections?
Yes, federal student loans can be sent to a student loan default collection agency if they go unpaid long enough and your loan officially enters default. The point at which your loan is considered in default can vary depending on the type of loan, but this typically happens only after you’ve missed several months of payments.
What happens if student loans go to collections?
Once your loan has gone to collections, several things may happen:
- Your loan may be assigned to debt collectors working on behalf of the government.
- The Treasury Department can withhold federal tax refunds and other federal payments to apply toward your balance (called a Treasury offset).
- The government may also impose wage garnishment to collect what you owe.
- Your loan status may negatively impact your credit report.
- You may lose access to certain repayment plan options until you resolve the default.
While none of this feels great, there are options to restore your loan to good standing, such as loan consolidation or rehabilitation, which we discuss more later on.
What’s changing with federal student loan collections in 2025?
Since 2020, the government had not been collecting on defaulted student loans until recently. Now, after several years on pause, the U.S. Department of Education is restarting the collection of student loans that are in default. Here’s what that means:
- Defaulted federal student loans can once again be sent to a student loan default collection agency.
- The federal government can take overdue amounts out of your tax refund or other government payments (like certain Social Security benefits) to repay your outstanding balances.
- Wage garnishment can also resume.
- Your credit report may show negative information again if your loans have defaulted, which can affect your ability to borrow in the future.
This update includes most federal loan types, such as Direct Loans, Federal Perkins Loans, and some Federal Family Education Loan (FFEL) Program loans, unless otherwise noted by the education department.
Note: This update applies only to federal student loans. Private student loans follow different rules and don’t go through federal offset programs.
What does it mean when my student loan is in default?
Here’s what defaulting on your loans means from the government’s perspective:
- For most federal loans, default status happens after roughly 270 days of missed monthly payments. One exception is Perkins loans, which can default much more quickly.
- Once a loan defaults, the account can be transferred to a debt collection agency or the Default Resolution Group (DRG), which is part of the Federal Student Aid office at the Department of Education.
- At that point, collection actions may begin.
When will default collections start for federal student loans?
Defaulted federal student loans began moving back into the student loan default collections system starting in mid-2025. The government has said that refund offsets, wage garnishment, and other debt collection methods will resume as early as the 2026 filing season (when you file your 2025 tax return).
However, before any refund offset begins, the federal government must send you a “notice of intent to offset” to your last-known address. This notice lets you know that refund offsets and negative credit report activity are scheduled to begin in 65 days. You will only get one notice, and after that, offsets will continue until your debt is paid in full or your loan’s default status is resolved.
How can I stop wage garnishment for student loans?
Whether you just received a notice of intent to offset, or your loans are already in default, you have several ways to stop or avoid wage garnishment, refund offsets, and other student loans debt collection actions. Each option works a little differently, but the goal is the same: to get your federal student loans back into good standing and stop collections.
Here are some options to consider:
1. Apply for loan rehabilitation.
Loan rehabilitation is one method to get your student loans out of default. A rehabilitated loan allows you to make a series of nine agreed-upon payments (usually based on your income) to pull your loan out of default. Once complete, collection actions stop, and your loan returns to normal repayment.
Good for:
- Borrowers who want to fully remove the default status from their credit report
- Borrowers who want to access income-driven repayment plan options after default
Important:
- To avoid a Treasury offset, you must make your first payment within 65 days of the date listed on your notice.
- Once completed, garnishment and offsets stop entirely (if they have already begun).
- Your credit report may still show any late payments that happened before the loan went into default.
To start the loan rehabilitation process, you must contact your loan servicer.
2. Consolidate your loans.
You may also be able to consolidate your defaulted federal student loans into one new loan, which can lower your monthly payment. Any accrued interest on your loans will get added to the principal balance of your new consolidated loan.
To consolidate a defaulted loan, you must do ONE of the following:
- make three consecutive “reasonable and affordable” payments (your loan holder will determine the required payment amount based on your circumstances), or
- agree to repay your new Direct Consolidation Loan under an income-driven repayment (IDR) plan.
Good for:
- Borrowers who want a quicker way to exit default
- Borrowers who want to avoid offset
Important:
- To avoid offset, you must submit your signed Direct Consolidation Loan application within 65 days of the date listed on your notice.
- You cannot consolidate until any existing wage garnishment or court judgment is lifted.
3. Pay the debt in full.
If you can pay off your full student loan balance within the 65-day window, doing so will help you avoid offset altogether.
Important:
- You must pay off your whole balance within 65 days of the date listed on your offset notice.
- To determine your exact payoff amount, contact the DRG or visit myeddebt.ed.gov.
4. File a valid objection.
You can dispute your debt if you believe it is incorrect, not enforceable, already paid, or affected by bankruptcy or disability status. You can do this by completing and signing a Request for Review Form, which should have come with your notice of intent to offset.
Important:
- Your signed form must be submitted within 65 days of the date listed on your notice.
- Your loan holder can give you more info about how to request a review.
- While your review is pending, student loan debt collection pauses.
- If your objection is successful, your refund and other federal payments won’t be offset. If it is denied, offset will continue.
5. Enter an income-driven repayment plan.
After your loan returns to good standing through rehabilitation or consolidation, you can enter an IDR plan to keep payments manageable long-term and avoid falling back into default. IDR bases your payment on your income and family size and may help you stay eligible for future student loan forgiveness programs.
You can request an IDR through the Federal Student Aid Office.
Still have questions? Studentaid.gov has a helpful webpage where you can compare your options for defaulted federal student loans.
Federal student loan debt changes for 2025 and beyond
While the return of student loans debt collection is one of the biggest changes affecting borrowers in 2025, some other repayment updates are also underway or already active. Here’s a quick breakdown.
What’s changing
- Income-Based Repayment (IBR) Plan eligibility: This has expanded under the Working Families Tax Cut Act (also called the One Big Beautiful Bill) passed in July 2025:
- You no longer need to show financial hardship to qualify for IBR.
- Parent PLUS borrowers may now access IBR for the first time if they consolidate into a Direct Consolidation Loan and make one full payment under an Income-Contingent Repayment (ICR) Plan before switching to IBR. You must consolidate your PLUS loans by June 30, 2026, to be eligible for IBR; studentaid.gov recommends applying for consolidation at least three months in advance.
- Repayment Assistance Plan (RAP) changes: The Department of Education has not yet published all the final details, but the Working Families Tax Cut Act has also made updates to the eligibility structures for RAPs, including how they will evaluate financial hardship and align RAPs more closely with IBR Plans going forward.
- Updated rules for how certain repayment plans count qualifying payments toward student loan forgiveness.
- The eventual elimination of the ICR and Pay as You Earn (PAYE) Plans.
For more details on any of these topics, including student loans changes and other policy changes, check out the official website at studentaid.gov.
Proposed changes to the SAVE Plan
On Dec. 9, 2025, the U.S. Department of Education announced a proposed settlement agreement that would end the Saving on a Valuable Education (SAVE) Plan. This change is not final yet as of publication and requires court approval. SAVE continues to operate normally in the meantime. Check this page for official updates.
FAQs
The bottom line
No one loves surprises during tax season — especially the kind that reduces your tax refund. With student loan default collections resuming, now is a great time to log in to your federal account, check your status, and explore your options if you’ve fallen behind. Taking action sooner rather than later can save you both stress and money in the long run.
This article is for informational purposes only and not legal or financial advice.
All TaxAct offers, products and services are subject to applicable terms and conditions.
The OBBB is now also being referred to by lawmakers as the Working Families Tax Cut Act. You may see one or both names used here, but they refer to the same set of tax changes.
