Student Loans in Default Will Be Sent to Collections Starting May 5, Department of Education Says

Beginning in two weeks, defaulted student loans will be sent to collections, the US Department of Education announced Monday. Borrowers currently in default and hoping for debt forgiveness should take action before collections resume on May 5.

"The Biden Administration misled borrowers: the executive branch does not have the constitutional authority to wipe debt away, nor do the loan balances simply disappear," Secretary of Education Linda McMahon said in the press release.

If you're behind on payments, it's important to reach out to your lender for options. Lenders can report loans as delinquent after they're 90 days past due, which can damage your credit score. Loans that are 270 days past due go into default, which comes with even more severe consequences.

"It's only defaulted loans that are at risk of wage garnishment, tax refund offset, Social Security garnishment and collection costs," Betsy Mayotte, president of the nonprofit Institute of Student Loan Advisors, said in an email to CNET.

The Department of Education paused payments on student loans beginning in March 2020, amid the pandemic. Payments didn't resume until September 2023, but the Biden administration gave borrowers a 12-month on-ramp to resume payments.

If your loans are delinquent but not yet in default, Mayotte noted that you're still eligible for lower payment options, including income-driven repayment plans, deferment and forbearance. Reach out to your servicer to discuss options, but expect long waits.

If you're more than 270 days behind on payments, you can get out of default through either loan rehabilitation or consolidation.

If you choose rehabilitation, you'll need to make nine consecutive on-time payments that are based on your income. After that, your loan is considered out of default and the default (but not the delinquencies) are removed from your credit report.

Consolidation allows you to consolidate your defaulted federal student loan into a new direct consolidation loan.

"Although consolidation is quicker, it does not remove the default from the borrower's credit history, and interest and collection costs may be added to the outstanding loan balance," student loan expert Mark Kantrowitz told CNET in an email. "Borrowers who rehabilitate their federal student loans through consolidation may also be restricted to an income-driven repayment plan."

If you're enrolled in the Saving for a Valuable Education repayment plan, your payments are still on pause following a court order blocking the plan in February. Kantrowitz said payments for those loans should resume soon. For now, borrowers can review other repayment plans using the student loan simulator at StudentAid.gov.