Defaulted Student Loans Looming? Pennsylvania Borrowers, Here's Your Game Plan

The news coming out of the US Department of Education about defaulted student loans heading to collection as of May 5th, 2025 is definitely concerning.  Some estimates place the number of borrowers in default at 10 million!  If you’re one of the millions who have not made a student loan payment in years and are not currently in a repayment plan, it’s time to prepare, not panic. We're here to break down what this means and, more importantly, what you can do right now to prepare and potentially mitigate the damage.

What's Happening? A Quick Recap

Essentially, the Department of Education is ending the pause on collections for federal student loans. This means that if you have not made a payment on your federal student loan or are not in an approved deferment program,  Beginning on May 5th, the Office of Federal Student Aid (FSA)  will send all borrowers in default an email communication making them aware of these developments and urging them to contact the Default Resolution Group to make a monthly payment, enroll in an income-driven repayment plan, or sign up for loan rehabilitation.  Be on the lookout for that email – do not ignore it.  Check your spam or junk mail folders to make sure you do not miss it. 

That being said, this situation is sure to attract scammers. Be careful not to share personal information and protect yourself from scams. Be on the lookout for information from FSA about repayment or requests for updated details to recertify your payment plan, such as proof of income or your family size, which must be updated annually to stay enrolled in an IDR plan.

What’s at Stake?

The government (or its contracted collection agencies) will soon start the process of actively pursuing repayment for non-responsive borrowers. This can include collection lawsuits, wage garnishment, tax refund offsets, and Social Security benefit reduction.  Defaulting on your student loans can wreck your credit rating and cause problems for your ability to qualify for loans in the future or the best interest rates.  Both student borrowers AND parents who co-signed or otherwise guaranteed these loans need to pay attention.

Are Your Student Loans Federal or Private Loans?

The first step is to determine whether you have federal student loans, private loans or both.  You have more options available to deal with federal student loans than private loans.  You can usually find your federal student loan information by logging into your Federal Student Aid account on studentaid.gov. Private student loans are not listed on studentaid.gov because they are not issued or managed by the federal government.

I Have Student Loans – What do I Do and What Are My Options?

Here's a breakdown of action steps and potential solutions:

Know Your Loan Servicer

Loan servicers are assigned by the government to handle federal student loan billing, repayment options, relief options, loan consolidation, and other services on behalf of borrowers, at no cost. If you’re not sure who your servicer is, visit the Federal Student Aid website or call the Federal Student Aid Information Center (FSAIC) at 1-800-433-3243

Log In to your FSA Account to Verify Details and Update Your Contact Information

Borrowers should log into their FSA account to ensure their loans are listed and accurate. They should confirm their contact information is up to date. Additionally, it’s a good time to ensure documents, like proof of income for those in income-driven repayment plans, are uploaded on your servicer’s website.

Check Your Eligibility for Other Cancellation Programs

The ED has several programs in place for loan forgiveness, cancellation or discharge, such as Public Service Loan Forgiveness (PSLF) for those employed by the government or not-for-profit organizations, teacher loan forgiveness, closed school discharge, disability discharge, borrower defense, and others. It’s important to note that PSLF has had significant program updates, and you may qualify now even if you didn’t previously.

Rehabilitation

This is often the most recommended first step. Rehabilitation involves making nine "reasonable and affordable" monthly payments within a ten-month period. Once you complete the rehabilitation program, your loan(s) will be considered non-defaulted, and you can explore income-driven repayment plans (more on those later). Importantly, successful loan rehabilitation removes the default from your credit report! This is HUGE for rebuilding your credit score in Pennsylvania.

Consolidation

If you have federal student loans, you may be eligible to consolidate (combine) your loans into a new Direct Consolidation Loan. You may want to consolidate your loans if you have multiple loans and want to simplify repayment or make your loans eligible for certain loan repayment, relief, or forgiveness options. You may also want to consolidate defaulted loans to get out of default.  Keep in mind that while consolidation can get you out of default, the default will remain on your credit report.  Here’s a chart comparing rehabilitation vs. consolidation.

Income-Driven Repayment Plans (IDR)

These plans, like SAVE (Saving on a Valuable Education), Income-Based Repayment (IBR), Pay As You Earn (PAYE), and Income-Contingent Repayment (ICR), base your monthly payments on your income and family size. For some borrowers, the monthly payment could be as low as $0. After a certain number of years (usually 20 or 25), the remaining balance is forgiven. Crucially, being on an IDR plan can shield you from aggressive collection actions in Pennsylvania.

Discharge

In certain situations, you may be eligible for a discharge of your student loans. This can include borrower defense to repayment (if your school misled you), total and permanent disability discharge, or closed school discharge. These are complex, and you likely need a qualified attorney to assist you.

Don't Face This Alone!

The upcoming resumption of student loan collections can feel daunting, but remember, you have options. By taking proactive steps now, you can protect your financial well-being and chart a path toward a more secure future. Don't hesitate to reach out for help – it's what we're here for!