By Eliza Haverstock, NerdWallet

After a five-year suspension that began in March 2020, the Trump administration is turning the student loan default collections machine back on. Millions of borrowers with defaulted loans are poised to face severe consequences starting on Monday, May 5.

“Resuming collections protects taxpayers from shouldering the cost of federal student loans that borrowers willingly undertook to finance their postsecondary education,” the Education Department said in a press release.

The far-reaching consequences of student loan default can hit a borrower all at once. The government can withhold portions of Social Security checks, take tax refunds and garnish paychecks. Credit scores plummet, making it difficult to buy a house, rent an apartment or get a job. Borrowers can’t get more student loans to go back to school or access loan relief options. Potential costs include court and collections fees.

If you’re in default, take action now. You want to contain the damage as much as possible. Unlike other forms of consumer debt, there’s no statute of limitations on federal student loan debt, says Michele Zampini, senior director of college affordability at The Institute for College Access and Success (TICAS). That means the government can collect on the debt indefinitely.

“We know that borrowers do want to repay their loans, but oftentimes they’re just met with this really confusing, byzantine system that can be difficult to navigate and difficult to understand what your options are,” says Brian Denten, an officer with The Pew Charitable Trust’s student loan initiative.

Here’s how to know if you’re impacted and options for navigating default.

Who is impacted right now?

More than five million borrowers face resumed collections in early May, the department said. Right now, only borrowers whose student loans were already in default when the pandemic payment pause began and remain in default today are impacted, experts say.

If you’ve fallen a few months behind on your student loan payments, or haven’t started paying again since the pandemic pause ended, you’re not impacted — yet. However, your loans may be considered delinquent. If you’re 90 days or more past due, the delinquency might be reported to the credit bureaus. A federal student loan defaults after 270 days of missed payments.

The student loan on-ramp ended Sept. 30, 2024, restarting the clock on missed payments. In late June or July, those delinquent accounts will begin going into default. Almost 10 million borrowers could be in default at that point — nearly 1 in 4 people with federal student loans, the Education Department said.

“If you’ve been receiving a monthly student loan bill from a company like MOHELA, that means you’re not in default yet,” says Mike Pierce, executive director and cofounder of the Student Borrower Protection Center (SBPC). “You might have fallen behind. You might be getting letters saying you need to make payments, but you have not yet defaulted.”

Not sure if this applies to you? Log into your studentaid.gov account. If your student loans are in default, there will be a red banner saying so and directing you to the Default Resolution Group, which is the loan servicer for defaulted federal student loans. (If you have defaulted FFELP student loans, you may work with a guaranty agency instead.)

If you are in default, the Education Department is required to give you 60 days notice before sending your debt to the Treasury Offset Program. The Treasury Department can then begin withholding a portion of your government payments, like Social Security checks, tax refunds and civilian government pensions. Your loan holder can order your non-government employer to fork over up to 15% of your paychecks. This process may start “later this summer,” according to the Education Department.

Two main ways out of default

When you default on your student loans, your debt is transferred out of the normal repayment servicing system. It enters “into what’s almost like the ‘bizarro land’ of the repayment system,” says Denten, “where it can be difficult to understand how to actually get yourself back on track and back into the status of making payments sustainably.”

This “bizarro” world has different rules. Instead of working with your old servicer, you likely work with the Default Resolution Group. Your entire balance becomes due, and you can’t access typical relief options, like income-driven repayment or forbearance.

Most borrowers can’t pay off their balance in full. There are two other pathways to exit student loan default, stop collections and reenter the regular repayment system. Kick off either process by getting in touch with your loan holder, likely the Default Resolution Group.

• Rehabilitation. You agree with your loan holder to make nine on-time monthly payments within 10 consecutive months. The payment amount is usually based on your income and family size. After you make these payments, your loans are placed back in good standing, and you can access regular repayment and relief options. Collection costs under rehabilitation are usually lower than the costs associated with consolidation. The default line is removed from your credit report, though late or missed payments prior to the default will remain.
• Consolidation. This process, which requires combining multiple loans into a single federal loan, generally takes about 60 days, and you may need to first make a few on-time payments before you can consolidate. This gets your loan back in good standing, and you’ll become eligible for income-driven repayment, Public Service Loan Forgiveness and forbearance or deferment. The default mark will remain on your credit report for seven years.

Rehabilitation and consolidation are both one-time opportunities. If you’re caught in a cycle of re-defaulting and you’ve already rehabilitated and consolidated, your options for exiting default become very limited, Denten says. In this case, you may need to work with your loan holder to negotiate a repayment plan, while your loan stays in the default system until it’s paid off.

Getting help if you’re in student loan default

Before contacting your loan holder, learn about your options.

“I would recommend a borrower do their homework,” says Betsy Mayotte, president and founder of The Institute of Student Loan Advisors (TISLA). “A lot of people have a lot of anxiety around this topic, and they don’t want to make that call to get started on the path [out of default], but they’re going to feel a lot more confident about it if they’re educated about what these options are.”

If you need further guidance or you think there’s an error in your account, consider reaching out to your elected officials, who may help you navigate broken public programs, Pierce says. The SBPC has an online tool for opening a case with your member of Congress. Vetted student loan nonprofits, like TISLA, can also help.

Watch out for student loan scammers who promise to get you out of default in exchange for money or access to your financial accounts.

“If someone’s asking you to make payments to them to help manage your student loans, do not engage with that company, and instead, look for a nonprofit group, like a legal aid group, that can help,” Zampini says.

Eliza Haverstock writes for NerdWallet. Email: ehaverstock@nerdwallet.com. Twitter: @elizahaverstock.

The article Student Loan Default Collections Resume: What to Know originally appeared on NerdWallet.