What’s Next for Student Loan Repayments? Key Updates from the Department of Education

After years of uncertainty, the U.S. student loan system is once again in transition. As of May 2025, significant policy updates, legal battles, and repayment shifts are shaping the experience of millions of federal student loan borrowers. Here's a clear breakdown of the Department of Education’s current approach to student loan repayments — and what it means for you.

Background Obstacle: Legal Roadblocks for the SAVE Plan

The Biden administration’s Saving on a Valuable Education (SAVE) plan was intended to offer more manageable monthly payments and enhanced interest relief under income-driven repayment (IDR) plans. However, the plan hit a major hurdle earlier this year.

In February 2025, the 8th Circuit Court of Appeals issued an injunction blocking key provisions of the SAVE plan. As a result, approximately 8 million borrowers — especially those pursuing Public Service Loan Forgiveness (PSLF) — are now stuck in limbo, unsure of whether their payment progress will count toward forgiveness.

Current Verdict: Student Loan Collections Resume

On April 21, the Department of Education released the following statistics regarding the student loan landscape:

• Approximately 42 million federal student loan borrowers owe more than $1.6 trillion

• Four million borrowers are in late-stage delinquency, meaning their payments are between 91–180 days late

• More than five million borrowers have not made a monthly payment in over 360 days and are in default

Beginning May 5, 2025, the Department of Education is restarting collections on defaulted federal student loans through their Treasury Offset Program. For the first time since the COVID-19 pandemic pause began in 2020, borrowers in default will again face involuntary measures such as wage garnishment and federal benefit withholding, including tax refunds and Social Security.

Roughly 42 million Americans are at risk of being impacted. For those borrowers, this development marks a serious financial consequence and underscores the need for timely action to avoid default.

Before May 5, you should receive an email from the Office of Financial Student Aid (FSA) explaining next steps to begin making payments through an income-driven repayment plan or to sign up for loan rehabilitation.

Note: Borrowers — including students and parents — who fail to make payments despite receiving adequate notice will face involuntary collection actions, such as wage garnishment. This means automatic deductions from their paychecks to repay defaulted loans. The Office of Federal Student Aid (FSA) plans to issue wage garnishment notices later this summer. In addition to garnishment, borrowers who are more than 90 days delinquent may see their credit scores drop, making it more difficult to rent housing, obtain a credit card, or secure loans for a car or home.

Reopened IDR and Consolidation Applications

Following the legal disruptions, the Department had temporarily paused new applications for IDR plans and loan consolidations. As of March 26, 2025, those applications are once again open.

Borrowers should apply to consolidate their loans or enroll in revised IDR plans, which can help lower monthly payments and protect against default — even amid ongoing policy disputes.

Political Divides and Proposed Changes

Student loan policy continues to be a battleground issue. Republican lawmakers have introduced proposals that would:

• Eliminate subsidized loans

• Extend loan repayment periods

• Limit eligibility for PSLF

• Restrict access to income-driven repayment options

Democratic leaders, meanwhile, argue these changes would burden middle- and low-income borrowers and roll back years of progress toward affordable education access.

Next Steps: Borrowers Need to Take Action

If you hold federal student loans, here are steps you should take:

• Review Your Repayment Plan: If you're on an IDR plan, stay informed about how the SAVE injunction may affect you.

• Consider Consolidation or Rehabilitation: If you're in default, loan rehabilitation or consolidation could help you avoid garnishment or collection.

• Stay in Touch with Your Loan Servicer: They can provide updates and help you understand how ongoing changes affect your repayment options.

• Watch for Official Communications: The Department of Education regularly updates guidance as policies evolve.

With collections resuming and court rulings reshaping repayment programs, the student loan system is entering a new phase — one that demands attention and action from borrowers. Whether you’re seeking forgiveness, trying to avoid default, or simply navigating repayments — staying informed will be essential in 2025 and beyond. Visit the federal student aid website for more information to come in the following weeks.