Student Loan Collections Resume, Borrowers at Risk -

Student loan collections have officially resumed in the United States, ending a five-year pause that had offered temporary relief to millions of borrowers. As of May 5, 2025, the U.S. Department of Education has begun recovering payments from those in default on federal student loans—a move that could carry serious consequences for personal finances, credit scores, and even the broader economy.

The End of a Long Pause

During the COVID-19 pandemic, both the Trump and Biden administrations put a halt on student loan repayments to ease financial burdens. While repayments technically resumed in September 2023, the Biden administration offered a one-year grace period—known as the “on-ramp”—during which missed payments did not negatively affect credit scores.

That grace period ended in September 2024. Since it takes about 90 days of missed payments for delinquency to appear on credit reports, the real credit impact is beginning now, in early 2025.

Who Is Affected?

The Department of Education has stated that over 5 million borrowers are currently in default, with another 4 million in late-stage delinquency, meaning they are 91 to 180 days behind on payments. These individuals now face the threat of wage garnishments, tax refund seizures, and damaged credit scores.

The burden is expected to fall most heavily on younger Americans. According to Morgan Stanley analysts, consumers under the age of 40 hold more than half of all student debt. While middle- and high-income individuals tend to carry larger loan balances, lower-income borrowers are more likely to default, making them particularly vulnerable under the new collection measures.

Credit Score Decline and Economic Ripple Effects

One of the most immediate impacts of resuming collections is a likely drop in credit scores. During the pandemic-era forbearance, many delinquent and defaulted borrowers actually saw their scores improve. Researchers at the Federal Reserve Bank of New York found that delinquent borrowers’ median credit score rose by 74 points, from 501 in late 2019 to 575 by the end of 2020.

But that progress is now in jeopardy. With collections back in motion and missed payments now being reported, analysts estimate that over 9 million borrowers will experience “substantial declines” in their credit standing in the first quarter of 2025.

This could make it harder for borrowers to secure loans for homes, cars, or other major purchases. In turn, this may have a dampening effect on consumer spending, which is a key driver of the U.S. economy.

A Minor GDP Impact, But Major Personal Struggles

While Morgan Stanley analysts suggest the resumption of collections will have a “relatively small” impact on the nation’s GDP, the individual consequences are far from small. Borrowers already struggling with rising living costs may be forced to cut back further, reducing discretionary spending and potentially delaying life milestones like buying property or starting a family.

Government’s Stand: “Fairness” and Fiscal Responsibility

In its April statement, the Department of Education defended the decision as a matter of fairness to taxpayers. Education Secretary Linda McMahon stated, “American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies.” She added that the department will continue to help borrowers return to repayment “for the sake of their own financial health and our nation’s economic outlook.”

However, critics argue that the resumption of collections—without meaningful reforms to the student loan system—may only deepen existing financial inequalities and further strain vulnerable households.

Looking Ahead

As millions of Americans brace for the impact of resumed student loan collections, it’s clear that student debt remains a major issue, both personally and politically. While the government aims to enforce repayment laws, the challenge now is to balance accountability with empathy—and avoid pushing already struggling borrowers into deeper financial hardship.