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Happy New Year. The government is coming for borrowers with overdue federal student loan debt.
Less than 40% of borrowers are current on their student loan payments, according to the U.S. Department of Education. As of April of last year, the Education Department said nearly 43 million student loan borrowers owed more than $1.6 trillion, with 5 million having not made a payment within 360 days — and some not paying for more than seven years.
With defaulted loan payments having been suspended since March 2020, government collection efforts that began last summer are now kicking into high gear. The first wave of garnishment letters is in the mail this week.
If you are behind on your student loan payments, here’s what you need to know now.
Read more: Student loans will look different in 2026. Here’s what’s changing.
When federal student loans go into default, the total loan balance is immediately due.
“While loans are technically delinquent after missing one payment, borrowers default after 270 days of missed payments,” Derek Brainard, CFP and director of financial education at nonprofit AccessLex Institute, told Yahoo Finance.
“The loans are also transferred from the borrower’s loan servicer to the Department of Education’s Default Resolution Group or other collections agency,” he added.
The government then begins collection efforts, which can include wage garnishment.
“Wage garnishment on defaulted federal student loans is restarting for the first time in five years,” Brainard said. “About 1,000 borrowers will begin receiving required 30-day garnishment notices this week. The number of borrowers receiving notices will then go up monthly.”
If you are in default on a federal student loan, a garnishment means that 15% of your income could be withheld from your paycheck without a court hearing. Federal benefits and income tax refunds could also be tapped for repayment.
First, determine if your student loans are federally issued by searching for your student loan servicer online or calling 800-433-3243.
“Borrowers in default seeking to prevent wage garnishments have three main options: student loan rehabilitation involving nine affordable payments over 10 months, loan consolidation by combining debt into a new loan with an income-driven repayment plan, or full repayment of the total balance and interest in a lump sum,” Brainard said.
When a loan is rehabilitated, it is no longer considered to be in default.
“You’ll regain eligibility for benefits that were available on the loan before you defaulted, such as deferment, forbearance, a choice of repayment plans, and loan forgiveness. And you’ll be eligible to receive federal student aid again,” the Federal Student Aid website explains.
“Importantly, the One Big Beautiful Bill Act increases the number of times a borrower can rehabilitate their loans from one to two,” Brainard noted.
Meanwhile, the Saving on a Valuable Education (SAVE) forbearance plan is being eliminated following a year on hold due to a court challenge. Pending applications are being closed, and SAVE borrowers will be moved into new repayment plans.
If you want to consider all options and run some numbers on which plan may be the most feasible, use the government’s recently updated free loan repayment calculator.
One important note: You don’t have to pay for student loan assistance, such as working out an income-driven repayment plan, loan consolidation, or applying for loan forgiveness. Federal assistance is offered by your loan servicer without charge.
Don’t fall for scams that require up-front payment.
Read more: What the end of the SAVE plan means for millions of student loan borrowers