Student Loan Collections Are Resuming: What Borrowers In Default Need to Know About Bankruptcy Protection

Millions of student loan borrowers across the United States are about to face a harsh reality. Starting May 5, 2025, the U.S. Department of Education will begin resuming collection efforts on federal student loans that are in default—a move that could result in garnishments, tax refund and social security payment interceptions, and other aggressive collections efforts.

This marks the end of a long period of forbearance that began during the COVID-19 pandemic. Since March 2020, federal student loans in default have not been referred to collection, and no wage garnishments or Treasury offsets have been pursued. However, that era of temporary leniency is coming to an abrupt close.

If you're one of the 5.3 million Americans currently in default—or among the 4 million borrowers who are significantly delinquent—this shift may feel like a tidal wave of pressure. You may even be at risk of legal action, including lawsuits filed in court to collect on defaulted debt.

What Can Bankruptcy Do in This Situation?

While federal student loans are typically not dischargeable in bankruptcy, that doesn’t mean bankruptcy is off the table as a strategy. In fact, bankruptcy can offer critical protections and financial breathing room for struggling borrowers.

1. The Automatic Stay Stops Lawsuits and Garnishments

When you file for bankruptcy, an Automatic Stay goes into effect immediately. This stay puts a halt to most collection efforts, including lawsuits, wage garnishments, etc.. Even though federal agencies may be able to resume garnishments after bankruptcy unless the debt is discharged, the stay buys valuable time to implement a more comprehensive debt reduction strategy.

2. Discharge of Other Debts Can Make Student Loan Repayment More Feasible

While your federal student loans may not be discharged, other forms of debt can be—credit cards, medical bills, payday loans, personal loans, and more. For many borrowers, this can free up hundreds or even thousands of dollars each month, making it more financially feasible to repay student loans or enter a rehabilitation or income-driven repayment plan.

3. Federal Collection Actions Are Administrative, But You Still Have Rights

Even if no lawsuit is filed, the government can still intercept tax refunds, garnish wages, or offset federal benefits to collect on federal student loan debt. Bankruptcy can disrupt this process—especially if you are proactive. In some cases, borrowers may also be eligible to challenge the non-dischargeability of their student loans under the “undue hardship” standard, though these cases are complex and require skilled legal advocacy.

What Should You Do Now?

If you are behind on your federal student loans—or already in default—now is the time to act. Waiting until a lawsuit is filed or your paycheck is garnished may limit your options. Bankruptcy may be a powerful tool to:

• Stop lawsuits and garnishments before they begin

• Eliminate other debt that’s draining your monthly income

• Create a financial reset that allows you to get back on track

If you're worried about how you're going to keep up—or if you're already overwhelmed—consult with a qualified bankruptcy attorney before things escalate.

About the Author
Brent Diefenderfer is a Pennsylvania bankruptcy attorney who helps individuals and families get the fresh start.