The U.S. Department of Education recently announced that it will delay involuntary collections on federal student loans while the Department implements student loan repayment reforms under the Working Families Tax Cuts Act. Involuntary collection methods such as Administrative Wage Garnishment (AWG) and the Treasury Offset Program (TOP) will be put on pause to allow borrowers time to review new repayment plan options made available under the Act.
Since student loan repayments resumed in late 2023, many borrowers have struggled to make their payments either on time or at all. The Department originally announced in April 2025 that it would resume collections on defaulted federal student loans in May following a five-year pause during the pandemic. However, this new announcement that involuntary collections will again be delayed may alleviate some of the stress borrowers may have begun to experience since the collection resumption.
The delay comes as the Department begins implementing a plan with the aim of helping borrowers repay their loans: the Working Families Tax Cuts Act (the Act). The Act, according to a January press release from the Department, strives to reduce “the number of federal student loan repayment plans, eliminating a confusing maze of options and making it easier for borrowers to select either a single standard repayment plan or income-driven repayment (IDR) plan that best meets their needs.”
A new IDR plan will be offered to borrowers under the Act that will waive unpaid interest for borrowers with on-time payments whose payments do not fully cover the accrued interest. This measure from the Department includes, in certain circumstances, small matching payments directly from the Department to ensure that outstanding principal amounts are reduced each month. The Act also allows borrowers a second chance to rehabilitate defaulted loans and get payments back on track in order to get out of default. The delay in collections will allow borrowers a chance to begin the rehabilitation process for a second time.
While the delay in collections gives borrowers the potential to evaluate new repayment options and complete rehabilitation agreements, many borrowers may still find themselves in financial situations resulting in significant struggle. Since the repayment resumption, there have been no borrowers newly defaulting since March 2020, according to a report from the Federal Student Aid Data Center in August 2025. This is expected to dramatically change in the coming months, as borrowers who are currently in delinquency may find themselves defaulting due to missed payments.
If despite the measures taken to alleviate the financial burden of student loan repayments you find yourself still struggling to find a plan that works for you, filing for bankruptcy may be an option to consider. The attorneys at Sader Law Firm are here to help you. Contact us at (816) 561-1818 for a free phone consultation and to learn more.