This week, after a five-year hiatus, the U.S. Department of Education will restart involuntary collection actions against borrowers who have defaulted on their student loans. This will likely affect millions of Americans: nearly 43 million Americans hold federal student loan debt; over 5 million of them are already in default, and that number could double to 10 million in a few months. Millions more are delinquent and at risk of default. In fact, just 38 percent of borrowers are “current” on their student loans and in repayment.

This “default cliff” is the result of a combination of forces. First, the years-long payment pause that began during the COVID-19 pandemic led many borrowers to become disconnected from their loan servicers and to fall out of the habit of monthly payments. In addition, the default cliff is a result of the factors that compel students to borrow in the first place: burdensome college costs, a growing wealth divide, and the higher education system’s overreliance on the model of student-debt-financed education. Finally, Republican proposals to remove safeguards for borrowers, such as income-driven repayment options and loan forgiveness options, increase the likelihood of a massive increase in defaults. Unfortunately, the burden of student loan debt is not shared equally, with older borrowers, noncompleters, and Black and Latino borrowers facing the greatest challenges during repayment.

Federal student loans are frequently the first consumer debt that millions of Americans acquire. Some borrowers may not fully understand the risks and consequences of taking on that debt, nor the impact of default on their future finances. In addition to the risk of legal action and wage garnishment, default can lead to prohibitions on access to future federal student aid such as loans and grants, difficulty obtaining a car loan or mortgage, and even difficulty renting an apartment or securing employment.

What can be done to staunch the impending flood of defaults? The Department of Education and the student loan servicers they contract with must be proactive in outreach to borrowers at high risk for default. The department can also improve communications with borrowers and introduce programs to mitigate harm. And Congress must ensure that struggling borrowers have access to an income-driven repayment (IDR) plan option that provides for affordable monthly payments and the opportunity of loan forgiveness at the end of the repayment term.

A Ramp Back to Repayment Disappears

While surprisingly common before the COVID-19 pandemic, the risk of default is now greater than ever because the payment pause caused borrowers to become disconnected from their servicers. The payment pause began in March 2020, during the height of the COVID-19 pandemic. The payment pause extended until October 2023. In addition, the Biden administration announced a one-year “on-ramp to repayment” period after October 2023, during which borrowers’ did not face any credit score damage for failure to make timely payments. The on-ramp period ended in October 2024. As anticipated, more student loan balances were categorized as past due after the on-ramp ended than before the payment pause. When servicers resumed delinquency reporting, student loan borrowers saw hits to their credit score, and subsequently, the national average FICO credit score fell. Delinquencies and defaults can remain part of borrowers’ credit history for years, affecting their ability to acquire other assets such as a home or car. Delinquent and defaulted student loan accounts harm individual borrowers and the economy writ large.

Since a borrower enters default after roughly nine months of missed payments, that means that a tidal wave of borrowers is expected to enter default starting next month. The Department of Education recently warned that, with resumption of collection, “there could be almost 10 million borrowers in default in a few months.… When this happens, almost 25 percent of the federal student loan portfolio will be in default.”

Defaults are most common among older borrowers, students who are unable to complete a certificate or degree program, and those who owe relatively low balances. Similarly, Black and Latino borrowers are more vulnerable to default because they are more likely to borrow than other racial and ethnic groups and face unique challenges to repayment, including severe underemployment among completers.

“There could be almost 10 million borrowers in default in a few months.… When this happens, almost 25 percent of the federal student loan portfolio will be in default.”

As noted above, many borrowers became disconnected from their servicers during the payment pause. Some of this occurred because during the pandemic payment pause, many loans were transferred across servicers. Millions of borrowers were impacted by loan transfers, and while notifications were made prior to these transfers, many borrowers lost contact with their servicers as a result of the transfers.

Likewise, the restart of repayment was plagued by errors. When repayment restarted in October 2023, some borrowers didn’t receive bills at all, and others received incorrect billing statements. Borrowers whose loans were transferred had to reinitiate certain services, such as autopayment, which deducts monthly student loan repayment. Unfortunately, confusion was compounded by student loan scams by predatory actors promising to help borrowers navigate the opaque repayment process, despite legitimate services being free of charge by the Department of Education, loan servicers, and a number of nonprofit organizations.

In addition to the scams and hiccups in servicing, borrowers faced confusion as a result of constant changes to the rules of the game. A spate of recent actions, ranging from lawsuits and executive orders to proposed regulatory changes, have led to repayment options being offered and then retracted. This has left student loan borrowers in a state of perpetual uncertainty about their repayment and debt relief options. For example, during the pandemic, the Biden administration established a new, more generous income-based loan repayment plan, the Saving on a Valuable Education (SAVE) plan. Approximately 8 million borrowers enrolled in the plan. However, those borrowers are now in limbo because of a court challenge to the program by Republican attorneys general. More changes are expected: the Department of Education announced last month that it is holding a new rulemaking on income-based repayment. The rulemaking could result in significant changes to—or the complete elimination of—the Pay As You Earn (PAYE) repayment plan, income-contingent repayment (ICR), and Public Service Loan Forgiveness (PSLF), stoking fears among low-wage earners, including Parent PLUS borrowers who rely on ICR as the only income-driven repayment plan they have access to. While lawmakers in Congress could support borrowers by codifying existing protections, they too are considering proposals that will reduce or eliminate safeguards for struggling borrowers.

While lawmakers in Congress could support borrowers by codifying existing protections, they too are considering proposals that will reduce or eliminate safeguards for struggling borrowers.

A Road to Nowhere?

Congressional Republicans have made clear their intention to scale back income-driven repayment plans, a move that would make monthly payments more expensive for struggling borrowers and keep them in repayment plans for longer periods. This will only worsen the default crisis.

With Republicans holding both chambers and the White House, it is likely that many of the safeguards in the student loan system will be removed. There is no doubt that in those intervening months, borrowers will continue to face confusing policy changes, opaque repayment options, and other obstacles that make it likely that borrowers will fall further behind on their payment obligations.

Limiting Repayment Options Fuels Default Risks

Struggling borrowers have limited options under the current regulatory scheme. Borrowers seeking lower monthly payments can enroll in income-driven repayment, but with a federal injunction preventing SAVE implementation, they can now only enroll in less generous repayment plans. Under Republican proposals, payments will rise for many borrowers in income-driven repayment.

In addition, low-income borrowers will face hurdles starting in February 2026, when borrowers enrolled in income-driven repayment will be required to recertify their income and family size, and failure to do so will send them back to a standard repayment plan. Borrowers on PAYE, IBR, or ICR who don’t recertify are placed back onto a standard ten-year repayment plan with a much higher monthly payment. However, there is some potential for improvement: the Department of Education announced that it will launch an “enhanced” IDR certification process, simplifying the time that it will take borrowers to enroll in IDR plans and eliminating the need for borrowers to recertify their income every year.

Although borrowers cannot currently enroll in SAVE, they can now apply for other repayment options, including PAYE, IBR, ICR, and loan consolidation. These applications were briefly offline, but now the applications are available again. These options offer struggling borrowers the chance to make lower monthly payments. Under these plans, the borrower’s repayment is equivalent to a fixed portion of their discretionary income, usually 10 to 20 percent, divided by 12. Unfortunately that number can still be unaffordable for many borrowers who carry large balances relative to their annual earnings. Another option for struggling borrowers is an economic hardship deferment, which permits borrowers to temporarily suspend payments. Borrowers can only receive this deferment only once, for up to three years. These options are not enough to staunch the growing tide of defaults.

We Can’t Hit Reverse on Progress

Prior presidential administrations have attempted to ease some of the most severe consequences of default so that borrowers can reenter repayment in good standing. In 2022, the Biden administration touted a new program, Fresh Start, that extended certain benefits to borrowers with eligible defaulted federal student loans. To enroll, defaulted borrowers had to make payment arrangements with the Department of Education’s Default Resolution Group. Once these terms were met, qualifying loans were transferred to a new federal loan servicer, marked “current,” and the previous default was removed from credit reporting. Borrowers who enrolled in Fresh Start regained access to federal student aid, income-driven repayment plans, as well as deferment and forbearance. Most importantly, enrolling suspended any debt collection activities. While this benefit was extended to all borrowers during the on-ramp period, borrowers who did not proactively enroll lost access to these benefits in October 2024.

Fresh Start was a time sensitive, one-time opportunity for borrowers to course correct their defaulted loans. More must be done to protect borrowers, especially because as many as 10 million borrowers are headed for default in the next few months. In addition, the Congressional budget reconciliation process is taking place now and Congress is looking for ways to cut higher education funding in order to pay for tax cuts for the wealthy. The IDR plans that have given a much needed reprieve to borrowers are likely to face attacks. Legislation to protect borrowers struggling under the weight of their debt is needed.

Default Is a Roadblock, Not a Dead End

All hope isn’t lost for borrowers who enter default, but they must be vigilant and proactive in their future dealings with the Department of Education and their servicer(s). Borrowers in default can “rehabilitate” their loans by contacting their loan servicer to initiate the process, and then make a set number of consecutive, on-time payments under a rehabilitation agreement. While the process can take months, borrowers who rehab their loans can have their default removed from their credit history. It’s also important to note that a student loan can only be rehabilitated once, though House Republicans floated a proposal in the College Cost Reduction Act that would allow borrowers to go through the process twice. Allowing borrowers to have their loans returned to “good standing” more than once is sound policy, though policymakers must also work to prevent defaults from happening in the first place.

Borrowers may also opt to consolidate their defaulted loan into a new loan. Borrowers can either enroll in and repay the new Direct Consolidation Loan under an IDR plan, or make consecutive, full, and on-time payments on the defaulted loan then submit an application to consolidate. Unfortunately, lawsuits and a tremendous processing backlog means borrowers are likely to face difficulty determining which of the existing plans is most affordable and therefore most likely to help them remain in good standing. The final option to get out of default is to repay the outstanding loan balance in full—a moot proposition for a borrower in such a financially precarious situation that they’ve already defaulted.

Defaulted Direct Loans are eligible for the IBR plan. IBR is the only plan under which borrowers have to demonstrate financial hardship to qualify for, and by virtue of their default status these borrowers are in need of some economic relief. Unfortunately, not enough borrowers are aware that they can be eligible for IBR if they default, and if the Department of Education does not have a robust and creative outreach strategy, borrowers are likely to fall through the cracks.

The Department of Education Can Ease the Way for Borrowers

With the financial future of millions of borrowers at risk, the Department of Education has a unique opportunity to help struggling borrowers. First, the department can improve messaging to current and future borrowers. Loan servicers and the Office of Federal Student Aid (FSA) already utilize automated email campaigns and the FSA website to communicate, but more regular communication with short and direct prompts is needed to reach borrowers where they are. When the department announced their intent to resume collections, they indicated it would conduct electronic outreach to remind them of their repayment obligation and offer additional support to struggling borrowers. This, coupled with extending call center hours, is an important step in the right direction, but more is needed.

With the financial future of millions of borrowers at risk, the Department of Education has a unique opportunity to help struggling borrowers.

Institutions of higher education could also play a more active role in ensuring that students completing their loan exit counseling—a notoriously short process—understand their repayment options. In addition, other government agencies could assist in information dissemination. Local workforce development boards, for example, could share information about IDR with underemployed job seekers.

Another way that the Department of Education can help struggling borrowers is to step up its messaging about the heightened likelihood of scams from people or organizations who pop up promising to shepherd people through the complex loan repayment system for a fee, as well as those who promise to “improve” credit scores by “removing” negative items.

In addition, Congress can help to reduce the risk of a “default cliff” by preserving repayment plan options that keep monthly payments low and provide for forgiveness after a reasonable repayment term. The reconciliation bill that recently passed out of the House Education and Workforce Committee proposes replacing existing income-driven repayment plans with a less generous plan that would cause some borrowers to see a nearly 33 percent increase in monthly payments. The bill offers two repayment plans for loans made after July 1, 2026—a standard plan and a newly proposed “repayment assistance plan.” Under the repayment assistance plan, borrowers will be required to make a minimum monthly payment of $10 regardless of their income and will not qualify for forgiveness until a whopping 360 payments—thirty years of payments, and far longer than any current IDR plans’ time to forgiveness.

Unfortunately, the bill would also eliminate all existing ICR plans and exclude current and future parent borrowers from income-based repayment. These changes would worsen, rather than ease, the default crisis.

Although Congress’s reconciliation bill will make things harder for struggling borrowers to avoid default, there are some things that the Department of Education may be able to do that could help lessen the strain on borrowers. The department must conduct comprehensive outreach about relief programs and pathways out of default. The department should ensure that all correspondences including letters, billing statements, text messages, and emails, as well as the FSA website, display information in a way that is accurate, clear, and concise.

The Road Ahead

Student loan borrowers spend a large portion of their working-age lifetime in repayment, and the burden of that debt has financial and emotional consequences. Economic insecurity can disrupt every part of a defaulted borrower’s life, including their mental health. Stress can compound depression and anxiety, and when faced with the short and long-term consequences of default, borrowers may feel the kind of paralyzing fear that results in inaction. Borrowers also need to feel empowered to reinitiate contact with their servicers. Borrowers may feel powerless to make a change, even if that change is simply picking up the phone. The Department of Education and Congress must take action to stave off the worst consequences of default for the nation’s student loan borrowers and their families.