The U.S. Department of Education will resume collections on defaulted federal student loans starting next month, marking the end of a collections pause that began in March 2020 as a pandemic relief measure. 

The Details: Beginning May 5, the government will use the Treasury Offset Program to collect on defaulted student loans by seizing tax refunds, federal salaries, and Social Security benefits to recover the unpaid debts. 

After a 30-day notice, the Department of Education will begin garnishing wages for borrowers who remain in default. 

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Under the Biden administration, student loans were canceled for more than 5 million borrowers and more than $183.6 billion in student loans through expanded forgiveness programs. 

However, Trump’s Education Secretary Linda McMahon said the Biden administration acted irresponsibly and misled borrowers.

“Going forward, the Department of Education, in conjunction with the Department of Treasury, will shepherd the student loan program responsibly and according to the law, which means helping borrowers return to repayment — both for the sake of their own financial health and our nation’s economic outlook,” McMahon said in a statement Monday. 

Data shows that student loan debt in the U.S. totals $1.777 trillion. Typically, it cannot be discharged in bankruptcy.

What To Know: According to data from the Education Department, more than 5 million borrowers are in default and less than 40% of borrowers are current on their student loan payments. 

The DOE said borrowers in default will receive email communications informing them of the changes and explaining repayment options, such as enrolling in an income-driven repayment plan or loan rehabilitation, to avoid forced collections. 

Stocks To Watch: Some borrowers may choose to refinance their loans, which would benefit companies like SoFi Technologies, Inc. SOFI, which had refinanced more than $45.8 billion in student loans as of December 2024. 

Navient Corp. NAVI and SLM Corp. SLM are other student loan servicers who should be monitored as the situation develops and collections resume for the first time in five years. 

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