The federal government is resuming collection on defaulted federal student loans, and it’s a crucial signal for students currently in school or planning how to pay for upcoming semesters. Learn what's happening to student loans now, why you should pay attention, and how newer models may offer a more resilient path forward.
According to the U.S. Department of Education, fewer than 40% of federal student loan borrowers are currently up to date on payments. As of last year:
During the pandemic, collections on defaulted loans were suspended, and that pause ended last summer.
Now, enforcement is accelerating, and the first wave of wage garnishment notices has already gone out, with more expected each month. Meaning individuals could have 15% of their wages garnished by the government to start repaying loan balances.
For borrowers early in their careers (or still in school), this can derail financial stability before it even begins and cause a domino effect that may impact car loans, mortgages, and other types of lending. So lets break it down...
A federal student loan typically enters default after 270 days of missed payments. Once that happens, the entire loan balance becomes immediately due. Then it is transferred to a federal collections unit, and involuntary collections can begin.
If a federal loan is in default, the government has broad authority to recover funds, including up to a 15% wage garnishment, seizure of federal tax refunds, and offsets to certain federal benefits. This can all be done without a court order.
Yes, but they must navigate a complex system, stay organized and follow all timelines. Additionally, recent legislation expanded rehabilitation eligibility from once to twice, but each of the below options still assumes the borrower can carry growing principal and interest, often regardless of degree outcomes or income volatility. Borrower options to get out of default include
Make nine affordable payments over 10 months and receive restored eligibility for repayment plans and additional federal aid
Combine loans into a new federal loan or private loan with a repayment plan
Pay the entire balance plus interest upfront
For current students, this restart of collections highlights a deeper issue with traditional student loans:
Federal loans are structured around balance and interest...not outcomes.
Payments don’t adjust meaningfully to career timing or income variability
Borrowers bear all downside risk if earnings fall short
Default triggers severe consequences, even early in a career
As repayment programs change, pause, or disappear (as we’ve seen with the elimination of the SAVE plan) students are left reacting to policy shifts rather than planning with certainty.
A core problem with federal student loans is that borrowing limits are based on the cost of attendance, not on expected post-graduation income. This disconnect often leads students to borrow more than their degree program can realistically support once they enter the workforce, especially during the early years of lower entry-level wages.
When fixed loan balances, interest accrual, and rigid repayment schedules collide with real earnings, repayment becomes strained and default risk increases. Many borrowers can find themselves in a financially unsustainable situation just based on their student loans.
Financial planners generally consider:
10–15% of income toward student loans = manageable
20%+ = high stress
40%+ = financially unsustainable for most households
This is where earnings-based funding comes in.
At Jurna, we believe education funding should align with what actually happens after graduation, not just what you borrow today.
Earnings-based funding aligns education funding with projected income outcomes, capping repayment as a percentage of earnings rather than a growing principal balance.
For students evaluating how to pay for college, earnings-based funding highlights the likely value of the education, while offering a more sustainable alternative to traditional federal and private student loans. A solution designed to reduce over-borrowing and better match repayment to career realities.
Instead of borrowing more than your major is worth, accruing interest, carrying a growing principal balance, facing default or collections
Your degree path
Projected post-graduation income
A fixed percentage of earnings for a defined period
If income is lower, payments adjust. If income increases, obligations remain capped by time and safeguards. It’s a fundamentally different risk model one designed for modern careers, not 20th-century lending assumptions.
Whether you’re relying on federal loans, private loans, or exploring alternatives, here’s what to focus on:
Understand your total borrowing picture, not just this semester
Know when repayment begins and what default actually triggers
Evaluate funding options based on outcomes, not just approval speed
Know the value of your degree and align your borrowing with what you will likely earn after graduation
Avoid solutions that depend on forgiveness or policy stability
And remember: legitimate federal loan assistance is free through your servicer. Be cautious of anyone charging upfront fees for help.
The restart of federal collections isn’t just a headline; it’s a reminder that how education is funded matters long after graduation.
As students face rising tuition, shifting repayment plans, and stricter enforcement, outcome-aligned models like earnings-based funding are no longer “alternative”; they’re a guiding light and practical.
At Jurna, we’re building funding designed to evolve with your career, not trap you in debt before it starts.
If you want to understand how earnings-based funding works for your degree and future path, we’re here to help you explore your options clearly, transparently, and without pressure.