Student Loan Repayments: What To Expect in 2025

What’s New

As 2025 approaches, and with it a new federal government, student loan borrowers who have benefitted from low or no repayments, enhanced pathways to forgiveness, and interest-free deferments will likely experience changes to how debt is recovered by the federal government.

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Why It’s Important

There are tens of millions of student borrowers across the U.S. The current government has already confirmed it plans to begin collecting repayments for those with defaulted loans in 2025. According to the Education Data Initiative, an average of 8.15 percent of student loan debt is in default at any given time, with an annual average of 471,000 students having defaulted after their second year in repayment.

With the Trump Administration beginning in January, student loan forgiveness and repayment plans enacted by President Joe Biden could fall due to legal challenges, meaning further changes could be on the agenda that borrowers should be aware of.

What To Know

Collections of Defaulted Loans

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The federal government has confirmed it will restart collections on loans in 2025. The coronavirus forbearance period, spanning from March 2020 to September 2023, halted collection activities on defaulted federal student loans. This was then extended for an additional year “on-ramp” for repayment where interest would still accrue on student loan balances, but a borrower would not enter into default status if they missed a payment.

For those who are still unable to pay back their loans, they will at some point in late 2025 likely be subject to garnishing of wages, tax refunds, and Social Security benefits. Credit reporting to agencies could start at the beginning of the year.

“These borrowers should know that the Department is required to report late or missing payments for most borrowers to the national credit reporting agencies in January 2025, and their loans will enter default—triggering mandatory collections and other consequences in late 2025,” the Department of Education said in an October blog post.

As the Biden administration will end in July, this responsibility will fall to the incoming Education Secretary, Linda McMahon.

“It seems likely that McMahon will inherit a student loan system where she will have to turn wage garnishment back on,” Mike Pierce, executive director of the Student Borrower Protection Center, said. “That’s an affirmative decision the Trump administration is going to have to make.”

What’s Next

Potential Trump Era Changes

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The Saving on a Valuable Education (SAVE) plan has been a cornerstone of the Biden Administration’s efforts to bring down student debt levels. But its survival hangs in the balance.

SAVE has provided borrowers with lower interest payments, waivers on excessive interest and pathways toward student loan forgiveness. But legal challenges have been mounted by Republican states over the program due to it being delivered by regulatory process and not through an act of Congress, and the Court of Appeals for the Eighth Circuit is set to deliver a verdict in the coming months.

While the current Democratic administration said it would appeal any decision that rules the program cannot continue, given that the White House will be handed over to Donald Trump in January, the chances of the program being saved are highly unlikely. Newsweek has contacted Trump’s team for comment via email.

“As we head into 2025, borrowers find themselves in a really difficult position, and facing tremendous amounts of uncertainty,” Michael Lux, an attorney and the founder of the Student Loan Sherpa, told Newsweek. “Millions of borrowers signed up for the SAVE repayment plan, and the vast majority of them should expect to see their payments increase. SAVE as we know it is unlikely to survive.”

Currently, borrowers enrolled in SAVE are not currently required to make payments since the Department of Education put them in an interest-free forbearance due to the ongoing litigation. But if SAVE does face the chop, borrowers would need to switch to Income-Based Repayment, which tends to offer monthly payments at a higher rate than SAVE.