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Student loan payments are back for the first time in five years. And for millions of student loan borrowers, that means missed payments, mounting costs, and serious financial risk.
This crisis has real consequences. In March, the Federal Reserve Bank of New York warned that 9 million borrowers risk a credit score drop of up to 170 points. That kind of damage can stick for nearly a decade, hurting access to affordable housing, cars, and insurance plans. By fall, borrowers who haven't made arrangements risk default—triggering wage garnishment, ballooning balances, and fewer options to get back on track.
This development affects not only individual borrowers but also employers, particularly HR departments who will need to support employees through this stressful transition. Proactive support can prevent financial hardship, reduce turnover, and build trust. Summer has put together a guide to navigating these times for both borrowers and HR leaders.
While this situation is undoubtedly stressful, it's important to know that you're not alone. Summer has helped hundreds of thousands of borrowers successfully navigate and avoid default and return to good standing. There are concrete solutions available, and with the right guidance, you can address these challenges and move toward financial stability.
What Borrowers Need to Know
Understanding Your Status
For borrowers already in default: If you were in default before the payment pause, you'll likely receive a collection notice this spring. Collection activities, including wage garnishment and tax refund offsets, may resume this summer.
For recently delinquent borrowers: The Department of Education is required to report you as delinquent to the major Credit Reporting Agencies after you are 90 days behind on payments. If you don’t make repayment arrangements, you'll face default in approximately October 2025. When you default, your loan balance is due in full and you lose access to affordable repayment options like the ability to pause your monthly payments using a deferment or forbearance and lower monthly payments by paying based on your income. You will also face the following consequences:
- Wage garnishment of up to 15% of your disposable income
- Tax refund seizures and possible withholding of federal benefits
- Collection fees of up to 25% of interest and principal
- Potential legal action including lawsuits from the Department of Education
- Professional license restrictions in some states
- Long-term credit damage affecting housing, employment, and other financial opportunities for up to 7 years
What to Do When You Receive a Collection Notice
- Don't ignore it. Collection notices contain important information about your loans and available options. Borrowers have a limited window of 45-60 days to take action and avoid the most serious consequences.
- Understand your options for getting out of default:
- Loan Rehabilitation: Make nine affordable monthly payments over ten months to remove the default from your credit report.
- Loan Consolidation: Combine existing federal loans into a new Direct Consolidation Loan to quickly exit default.
- Full Repayment: Pay the total loan balance (rarely feasible for most borrowers).
- Loan forgiveness: Depending on your situation, you may be eligible for loan forgiveness or discharge.
- Know your rights regarding collections:
- You can dispute the debt if you believe there's an error
- You can request copies of loan documents
- Collectors must follow specific rules when contacting you
- You can file debt collection complaints with the Consumer Financial Protection Bureau
- Enroll in income-driven repayment plans once out of default to maintain manageable payments and stay current.
Immediate Steps to Take
- Verify your contact information on StudentAid.gov to ensure you receive all notices
- Log into your Federal Student Aid account to check your loan status
- Contact your loan servicer to discuss options
- Document all communications with collection agencies and loan servicers
How HR Can Support Employees
As federal student loan payments resume, millions of borrowers risk falling behind — and that can trigger wage garnishment. For HR leaders, proactive support can prevent financial hardship, reduce turnover, and build trust.
How Default Impacts Your Employees
If you receive a wage garnishment order you are legally required to deduct up to 15% of disposable pay from the employee’s paycheck and continue those deductions until instructed otherwise.
- Financial strain: Collection activities can take up to 15% of disposable income through wage garnishment
- Mental health consequences: Financial stress contributes to anxiety and decreased workplace performance
- Recruitment and retention challenges: Financial wellness benefits are increasingly decisive factors for talent and employees may resign to avoid garnishment.
How Summer Can Help
Summer's comprehensive student loan solution provides early intervention tools backed by student loan experts to support your employees right now:
- Personalized guidance from student loan experts to help employees avoid deliqency and navigate default remediation
- Custom federal repayment plans that align with individual financial situations, offering monthly payments as low as $0 depending on incoem and family size
- Streamlined documentation to simplify complex federal programs
- Ongoing support as loan policies continue to evolve
- Reduced HR burden by providing specialized expertise your team may not have
Take Action Now
The timeline for default consequences is accelerating. For the 6 million borrowers already in default, collection notices will arrive soon with penalties resuming this summer. For the 9 million recently delinquent borrowers, default looms in October.
For borrowers: Don't wait until you receive a collection notice. Visit StudentAid.gov today to check your status and begin exploring options.
For HR leaders: Position your organization as a resource rather than another source of stress. Your employees need support now before collection activities impact their financial wellbeing and workplace performance.
Book a meeting with Summer today to learn how our student loan benefit can help your organization navigate these challenges and provide meaningful support to your employees during this critical time.
Summer is a leading student loan advisory service that helps borrowers and organizations navigate the complex student loan repayment landscape. Our team of experts stays current on all policy changes to provide timely, accurate guidance when it matters most.
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