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 wage garnishments, tax refund interceptions and social security setoffs, and other aggressive collection 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 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, you may be at risk for collection on defaulted student loan debt.
What Can Bankruptcy Help ?
Absent undue hardship, federal student loans are typically not dischargeable in bankruptcy. But 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, Garnishments and Student Loan Collections
When you file for bankruptcy, an “automatic stay” goes into effect immediately. This stay puts a halt to most collection efforts, including those imposed by the federal government.
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 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 “fresh start” 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—schedule a consultation with me before things escalate.
Contact Brent Diefenderfer by calling 717-718-7127 or emailing bdiefenderfer@cgalaw.com.
Brent C. Diefenderfer
Shareholder I Attorney
Brent advises clients on implementing debt reduction strategies that are appropriate to their unique situation, including bankruptcy under Chapter 7, Chapter 13 or Chapter 11, creditor’s rights and non-bankruptcy debt reduction strategies.
Read Brent’s Bio Page in full HERE.
