Two weeks ago, the U.S. Department of Education (ED) announced that the office of Federal Student Aid (FSA) would resume collecting defaulted student loans starting on May 5, 2025.
This officially marks the end of multiple student loan payment relief pauses that started in March 2020 as a result of the COVID-19 pandemic. According to the ED, “More than 5 million borrowers have not made a monthly payment in over 360 days and sit in default,” and that number could escalate to “almost 10 million borrowers in default in a few months.”
If you’re one of the 10 million borrowers who will be affected, the ED warns that the “FSA will send required notices beginning administrative wage garnishment” as soon as this summer. You can check your federal student loan status by visiting StudentAid.gov, where you can also find information on student loan deferment and income-driven repayment plans.
Whether you’re at risk of defaulting on your student loan(s) or you’re simply looking to get rid of the balance looming over your head, having a solid financial strategy to approach your debt can help immensely.
3 financial tips to help with imminent student loan collection
Addressing your student loan debt can be intimidating, but it can’t be avoided forever. The “ostrich effect,” or the human tendency to “[avoid] information when people expect the outcome to be bad,” isn’t helpful when it comes to paying off your student loans.
Instead, it’s necessary to be aware of exactly how much you owe, what your interest rates are, and how much you have coming in and going out of your bank account every month.
1. Take a fresh look at your current budget
Budgeting is one of many financial basics everyone should know, but despite its simple nature, budgeting is one of the best ways you can approach your student loan debt.
Any time a new expense or source of income is added to your typical month, it’s time to reassess your current budget. While it’s difficult to pinpoint the exact number you may have to pay on student loans, a nonresident senior fellow at the Urban Institute, Jason Delisle, provided estimates on how much borrowers can expect to pay per month, based on their current income.
The nationwide median household income in 2023 was $80,610. According to Delisle, a one-person household making $80,000 would pay approximately $467 per month toward their student loan.
Borrowers who make less would pay a lower percentage of their income. For example, a one-person household making only $40,000 would pay around $100 toward student loans every month.
Find out what your estimated student loan payment may be based on your income, and look at your current budget to see what you can possibly cut to comfortably fit the payment in. If you can pay more than your minimum payment, even better.
2. Look into ways to boost your income
If you can’t cut any expenses to accommodate your student loan payment, one solution is to seek out extra monthly income. This could include starting that side hustle you’ve been thinking about, applying for a promotion at your current job, or trying to find a competing company that’s willing to pay you more.
This financial advice applies to new graduates as well as those who earned their degree years ago. And if changing jobs or making extra money isn’t feasible for you, look into whether your current employer has a 401(k) student loan match program that you can take advantage of.
3. Tackle your debt with the highest interest rate first
You have to pay whatever the ED says you have to pay every month on your student loan(s), but if you have extra income after that to put toward paying off your debt, make sure you’re sending it to the debt with the highest interest rate first.
Your high-interest credit card balance will likely cost you more in the long run than your federal student loan, so even though your student loan balance may be much larger, it’s a smarter strategy to pay off high-interest debt first.
Fitting a student loan payment into your existing financial plan may not be something you planned for this month, but by implementing these quick strategies, you’ll be one step closer to sending in that glorious final payment.
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The post Student Loan Collections Resume: 3 Financial Tips for Paying Off Your Loan Balance appeared first on SUCCESS.