• Collections on defaulted student loans will restart on May 5, impacting over 5 million borrowers.
• The Department of Education will garnish wages and federal payments from defaulted borrowers.
• Experts warn that restarting payments risks economic slowdown amid already challenging circumstances.

The U.S. Department of Education has announced that it will resume collections on defaulted federal student loans starting on May 5, 2025, marking the end of a multi-year pause that began due to the COVID-19 pandemic. Approximately 5 million borrowers who have not made payments for over 270 days will be affected, along with an additional 4 million who are in late-stage delinquency, risking default imminently, according to the department's announcements reported by ABC News and India Times.

Restarting these collections means the government will start garnishing wages, seizing tax refunds, and withholding federal benefits like Social Security to recover unpaid debts. Education Secretary Linda McMahon stated that the move is intended to shift the financial responsibility of student loans back to the borrowers rather than taxpayers, which has been the case during the payment hiatus since March 2020, according to The Hill and NPR.

Experts express concern that the timing of this policy shift could worsen economic conditions, as millions of borrowers face immediate financial burdens. Consumer spending, which constitutes 70% of U.S. economic activity, may further decline due to the loss of disposable income amid rising inflation and stagnant wages, said Scott Imberman, an education policy professor at Michigan State University, and supported by findings from ABC News and The Hill.

Financial strain from these collections could also hinder borrowers' ability to purchase homes and cars, with the threat of poor credit ratings looming for many in default. Experts have cautioned that resuming collections might coincide poorly with an already fragile economy, raising fears among borrowers about immediate financial repercussions and potentially permanent damage to their credit scores, emphasized by sources from NPR and India Times.

As the collections restart, the Department emphasizes the necessity of communication, stating that the federal government will provide notice of the implications of default to all affected borrowers. They are expected to enroll in income-driven repayment plans or consider loan rehabilitation, which can help borrowers regain compliance and stability in their finances, according to the outlined plans reported by The Hill and ABC News.

Despite the concerns raised, some argue that the resumption of these collections is essential for restoring accountability to the system, preventing future unpaid debts from falling back on taxpayers. Critics assert that without such measures, there would be little incentive for borrowers to repay their loans, leading to the unchecked growth of student debt and allowing colleges to increase tuition without consequence, as discussed in evaluations by The Hill and analysis shared by The Hill.