The U.S. Department of Education is updating its handling of defaults on student loans. The Federal Student Aid (FSA) subsection of the Education Department will resume collections. Facilitated by the U.S. Department of the Treasury, Treasury Offsets will soon be reintroduced. These offsets involve withholding funds received from government sources. These funds can be applied toward paying defaulted loans.
The change was announced on April 21, 2025. It will go into full effect on May 5, 2025. The collection process is being reintroduced in concert with a loan help outreach project. Loan borrowers are encouraged to apply for various default payment and rehabilitation programs.
Upcoming Change for Student Loans
The U.S. Department of Education has announced a change in student loan policy. Federal Student Aid (FSA) will begin a collection process for defaulted student loans. The department’s website states: “FSA will restart the Treasury Offset Program… on Monday, May 5, 2025.”
Treasury Offset refers to withholding money from government sources to apply to loan debt. The U.S. Department of the Treasury will facilitate this program. According to the Education Department, there will also be a “communications and outreach campaign.” This FSA campaign will inform loan holders of available payment and loan rehabilitation plans.
Effects on Loan Holders
The student loan change announcement was put out on April 21, 2025. The U.S. Department of Education’s website states that “borrowers in default will receive email communications.” These emails will be sent out over the two weeks following the announcement. People with loans in default will be apprised of new regulations. They will be advised to connect with the Default Resolution Group within the Education Department. This group provides help with remedying defaulted loan situations.
After defaulting on a student loan, you are held responsible for the loan’s entire balance. You can take steps to work with the Department of Education to resolve your default. If no steps are taken, a process of collection may result. For instance, funds may be taken from wages or offset from government payments you receive.
You will receive notification sixty-five days before an offset is scheduled to begin. This notification will inform you of a possible offset. The notification will also state that possible negative reports to credit agencies may be imminent. You can use the sixty-five days mentioned to address your loan default. During this time, you can apply for programs to help you avoid collection actions.
Knowing Available Choices
Though this may seem scary if you have student loans in default, you have options. The Federal Student Aid website provides various steps that you can take. For instance, there are repayment agreements. With a repayment agreement, you make approved payments. Your loan is still in default, but you can avoid potentially having money withheld.
You can also make payments toward loan rehabilitation. Once you have completed nine approved payments, your loan is no longer in default. Consolidating any defaulted loans with other loans could also be a helpful option. In addition, if possible, you could fully pay off your loan. You could also provide a statement explaining why you should not face loan penalties. This explanation can be supported by documentation.
Helpful Features of the FSA Website
The FSA website aims to work with borrowers of student loans to resolve defaults. One feature of the site is the Loan Simulator. The Loan Simulator allows you to enter your financial information. The simulator then provides you with possibilities for repayment and consolidation options. Another interactive feature is Aiden, a virtual AI helper available to chat with. Aiden can answer questions about student loans and other financial aid topics. In addition, FSA is working to be available for loan questions through extended calling hours.
