Student Loan Collections Resume
Borrowers with federal loans in default benefited from a collections reprieve that had been in place since March 2020. That ended on May 5th, 2025, when the Office of Federal Student Aid (FSA) restarted the Treasury Offset Program, a centralized debt collection program run by the U.S. Treasury. The move allows the government to collect borrowers’ debt by withholding money from their income tax refunds, Social Security benefits, and other federal payments. In addition, loan holders can also order employers to withhold up to 15% of a borrower’s disposable pay to collect their defaulted debt without taking them to court. This withholding (“garnishment”) continues until their defaulted loan is paid in full or removed from default. Nearly 10 million borrowers are now or will soon be in default, according to the Department of Education (ED). Affected borrowers have the option to:• Make a monthly payment.
• Enroll in an income-driven repayment plan.
• Sign up for loan rehabilitation. Wage garnishments can only be conducted only after borrowers have been provided sufficient notice and opportunity to repay their loans under the law.
What Benefit Pros Can Do
Employees may have questions about how to make the transition to student debt repayment a smooth one. They may also be concerned about the possibility of a wage garnishment and what that means for their paychecks. Each scenario requires a different approach. Consider these options if your employees are weighing their options for avoiding an offset:• Offer employees one-on-one sessions with a financial planner who can assist them with creating a workable budget and debt repayment plan.
• Provide access to a student debt specialist or coach who can offer guidance on income-driven repayment (IDR) plans, loan rehabilitation, and student loan refinancing.
• Consider offering student loan repayment benefits. Through 2025, employers can contribute up to $5,250 annually per employee toward student loan payments on a tax-exempt basis. Employers also have the option to match employee student loan payments with contributions to their retirement accounts, such as 401(k) plans. This helps employees save for retirement while tackling their debt. If wage garnishment is a concern, familiarize yourself with your responsibilities and communicate them clearly to employees. Should you receive an administrative wage garnishment order from the government, you must:
• Verify the borrower's employment
• Complete a Wage Garnishment Worksheet and Employer Certification.
• Calculate the amount you're required to withhold.
• Deduct the wage garnishment amount and forward it to the Department of Education. Recommended: Employer Perspectives on Student Loan Repayment Benefits
Challenges to PSLF Employer Eligibility
Public Service Loan Forgiveness (PSLF) offers an opportunity for loan relief after borrowers make 120 qualifying monthly payments while employed full-time for an eligible employer. PSLF has been an important opportunity for loan forgiveness for many teachers, healthcare workers, public servants, and employees of nonprofit organizations. While there have been no changes to PSLF as of May 2025, an executive order (EO) that could narrow the scope of eligible employers is currently under review. The EO doesn't specify exactly which nonprofit sectors could be at risk, but it appears to target groups that are involved these issues:• Immigration and the rights of immigrants, undocumented people, and asylum seekers
• Protection of transgender individuals
• Engaging in public activism that disrupts the public order If these proposed changes are implemented, otherwise eligible employers may be excluded, which could prevent their employees from qualifying for loan forgiveness.
What Benefit Pros Can Do
If your organization is in the public sector or operates as a 501(c)(3) charitable nonprofit, you may want to offer employees the opportunity to speak with a student loan and financial wellness counselor. A counselor can help new hires understand how to:• Determine their PSLF eligibility.
• Choose a PSLF-eligible repayment plan.
• Track their qualifying monthly payments. Existing employees who have already made progress toward PSLF may also need guidance. Generally, these workers should continue to make payments to work towards forgiveness. However, they may want to evaluate whether their current repayment plan is the best one for their situation. Those who are enrolled in PSLF as well the Saving on a Valuable Education (SAVE) repayment plan have been in forbearance as a result of legal challenges (more on that below). These workers may need guidance on whether to stay in forbearance or apply for a different repayment plan to resume progress toward PSLF. Recommended: The Future of Financial Well-Being in the Workplace
SAVE Plan Remains in Legal Limbo
Income-driven repayment (IDR) plans are federal student loan repayment options that calculate monthly payments based on income and family size, making them more affordable for borrowers. These plans also allow for potential loan forgiveness after a certain number of years. The newest IDR plan, Saving on a Valuable Education (SAVE) Plan, was introduced by President Biden. SAVE significantly caps student loan payments for eligible borrowers, with some seeing their payments reduced to $0. In addition, it offers student loan forgiveness after two decades of repayments, or potentially as little as 10 years. In the fall of 2024, seven Republican-led states sued the ED to block the new repayment plan. The following spring, a federal court issued an injunction preventing the ED from fully implementing SAVE. Since that ruling, the program’s fate has remained uncertain. In the meantime, the eight million borrowers who signed up for the SAVE plan before the application was shut down have been placed in forbearance as the legal proceedings continue. These borrowers:• Do not have to make monthly payments on their loans right now.
• Will not see interest accrue.
• Do not earn credit toward PSLF or IDR forgiveness. At the time of writing, there is no set end date for the general forbearance. If the SAVE program is blocked, borrowers may have to switch to less favorable repayment plans, like Income-Based Repayment (IBR), which may result in higher monthly payments. It’s also important to note that the forgiveness feature of the SAVE, Pay As You Earn (PAYE), and Income-Contingent Repayment (ICR) Plans is currently paused as a result of the court injunction. The government can and will still process loan forgiveness for the IBR Plan.
What Benefit Pros Can Do
The SAVE plan is not expected to resume any time soon, if at all, which raises the question of what borrowers should do now, and if SAVE goes away. A counselor can help employees who are currently enrolled in the SAVE plan but in forbearance about their options. These include:• Switching to an eligible IDR plan right now. This may be a good move for those who are working toward loan forgiveness and/or want to make progress on student loan debt repayment.
• Waiting until forbearance ends to make a move. Some borrowers may want to simply stay in forbearance, while setting aside funds in an emergency savings account to prepare for when payments resume. If SAVE goes away, borrowers will need to switch to another repayment plan, which could substantially increase their loan payments. A student debt specialist can help calculate payments under each plan to determine which one is most affordable. They can also help employees who are not seeking forgiveness weigh the pros and cons of refinancing their loans with a private lender.
The Takeaway
Student loans can create stress for borrowers, particularly when there are numerous changes to lending and repayment being floated or implemented. If you're looking for ways to help your team members navigate some of the uncertainty, SoFi can help. We offer student loan education, refinancing, repayment benefit platforms, and other tools that can help you support your employees and promote their overall financial wellness.Photo credit: iStock/PeopleImages
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