Student Loan Delinquency and Default - Take Action Now to Avoid Further Credit Damage and Collection Activity

When a federal student loan defaults, The Department of Education (ED)* can use various tools to withhold your money and apply those funds to your loan. ED’s primary methods for involuntary collection include the Treasury Offset Program (TOP) and Administrative Wage Garnishment (AWG).

Involuntary collections have been paused since 2020 following the COVID-19 pandemic. While collections were set to resume in early 2026, ED has temporarily delayed the start of collection activity.

*ED will eventually transfer responsibility for the collection of defaulted loans to the Department of the Treasury. The timeline of this transfer is unknown, but it’s important to note that while a new agency may be getting involved, this does not change your loan terms or your options for getting your loans out of default.

Why is this delay so critical for borrowers?

With millions of borrowers behind on their payments, ED’s decision to hold off on involuntary collections gives borrowers an opportunity to take action to avoid the most costly consequences of default.

Once treasury offset begins, your tax refund can be seized each year for as long as your loan remains in default, potentially causing serious financial strain if you’re counting on your refund.

With AWG, ED can garnish up to 15% of your take-home pay from each paycheck. Once you’re notified your paycheck will be garnished, you only have 30 days to take action to prevent the garnishment. If the garnishment starts, you’ll have fewer options to resolve the default, so it’s important to stop the garnishment before it starts.

ED hasn’t specified how long collections will be delayed, so you should take action as soon as possible. Your next steps will depend on whether your loan is delinquent or in default.

How to get a delinquent loan back on track

If you’ve missed payments but continue to receive bills from your servicer, your loan is likely delinquent, not in default. Default happens at 270 days without payment, and most defaulted loans are transferred to ED’s Default Resolution Group (DRG) for collection.

While not as serious as default, it’s important to resolve delinquency as soon as possible, as federal student loans are reported as delinquent to the credit bureaus at 90 days without payment.

If you can’t afford to pay the past due balance, you still have options. You can call your servicer to request forbearance, if necessary. A forbearance will pause your payments and bring your loans current immediately (the downside is that interest will continue to accrue).

Forbearance is only a short-term fix. While your payments are postponed, it’s important to implement a long-term strategy for managing your payments, whether that means switching to an Extended plan with a longer term or applying for lower payments on an Income-Driven Repayment (IDR) plan.

Resolve default before collection activity starts

Aside from paying your balance in full, there are two primary ways to resolve a defaulted federal student loan: loan rehabilitation and consolidation. Both options will resolve the default and restore your access to:

• Federal repayment plans
• Loan forgiveness programs (if eligible)
• Deferment and forbearance
• Additional federal student aid

Rehabilitation has the added benefit of removing the default notation from your credit report. With consolidation, the default notation will remain for 7 years from the date of default. Keep in mind, rehabilitation won’t completely clear your credit, as it doesn’t remove the record of missed payments prior to default.

Loan rehabilitation: Requires nine consecutive monthly payments to bring your loans out of default and back into repayment.

Rehabilitation tips:

1. ED’s DRG will propose a payment amount based on a percentage of your income, but if that payment is not affordable, you have the option to request a recalculation based on your expenses. This requires additional documentation but will typically result in lower payments. You can contact the DRG to set up your rehabilitation program at 1-800-621-3115.
2. You technically have ten months to make your nine payments, so if you miss one payment, that’s okay. If you miss more than one payment, you can still rehabilitate your loans but you’ll need to start the process over again. Autopay is recommended to avoid missed payments.
3. Don’t forget to return all requested documentation. Even if you make all nine payments, your loans won’t be successfully rehabilitated if ED doesn’t receive your paperwork.

Loan Consolidation: Your individual student loans are paid in full within 60-90 days and you’re issued a Direct Consolidation Loan, a brand new loan that pays off your defaulted loans.

Keep in mind:

1. If you apply to consolidate your loans after April 1, 2026, it’s possible your loan may not be disbursed until after July 1st. If your loan is disbursed on or after July 1, 2026, ED will consider you a “new” borrower and you will have fewer repayment options. You’ll need to repay your consolidation loan on either the tiered Standard Repayment Plan or the Repayment Assistance Plan (RAP). If you’re consolidating Parent PLUS loans, you’ll only have access to the tiered Standard Repayment Plan. If you’re concerned about affordability moving forward, consider rehabilitating your loans instead to maintain access to additional repayment plans.
2. While consolidation is a faster route out of default, it’s important to understand a cost that’s often overlooked. When you consolidate, any accrued interest is added to your principal balance. Since interest accrues on your principal balance, if your principal balance grows, you may pay more interest in the future as a result.

You might be eligible for both consolidation or rehabilitation, or just one option, depending on whether you’ve consolidated or rehabilitated your loans before.

If you have Tuition.io: our student loan coaches are available to help you choose the best repayment plan and navigate the process. Log in to Tuition.io to schedule a 1:1 with a coach.

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