
Allworth Head of Wealth Planning, Victoria Bogner offers a student loan guide to help you and your kids stay ahead.
If you’ve been blissfully ignoring the student loan headlines over the last few months, you’re not alone. But that peaceful silence? It’s about to end. Fast.
On May 5, 2025, the Department of Education officially restarted collections on defaulted federal student loans. And while that news didn’t come with a drumroll, it should have. Because if you (or someone in your family) has a loan in default, it’s not just a bureaucratic detail. It’s a ticking clock.
As wealth planners, we’re seeing a surge of questions from clients navigating this student loan quicksand. So here’s your plain-English guide to what’s happening, who it affects, and what actions you (or your kids) should be taking to stay ahead of the mess.
First, What Does "Default" Actually Mean?
A federal student loan typically goes into default if you haven’t made a payment in more than 270 days. Once that happens, a few unpleasant things kick in: your credit score tanks, you lose access to deferment or forbearance options, and the government can begin garnishing your wages or seizing tax refunds. It’s not a small issue. It’s financial triage territory.
Since collections had been on pause since the pandemic, many borrowers in default may have assumed they were in the clear. They weren’t. And with collections now back online, the time for passive waiting is over.
If You're in Default, You've Got Two Options: Rehab or Consolidation
This isn’t a choose-your-own-adventure situation. It’s more of a choose-before-the-garnishment-letter-arrives situation. There are two main paths out of default, and they both have pros and cons.
1. Loan Rehabilitation
This involves agreeing to a new, affordable monthly payment plan (often income-based) and making nine on-time payments over ten months. If you complete the program successfully, the default status is removed from your credit report.
- Pros: Default cleared from your record, eligibility for federal protections is restored.
- Cons: You can only do it once per loan. It takes time, and if you miss a payment, you’re back at square one.
2. Loan Consolidation
This lets you combine one or more federal loans into a new Direct Consolidation Loan. To qualify, you usually need to either make three on-time payments or agree to repay through an income-driven plan.
- Pros: Faster than rehab, and can get you out of default quickly.
- Cons: The default remains on your credit report, and interest may capitalize (in other words, your balance goes up).
Which one is better? That depends on your goals, credit profile, and how urgently you need to get out of default. But here’s the big takeaway: doing nothing is not an option anymore.
Parents, Pay Attention Too
If your adult child is in default, this still matters to you. Why? Because:
- You may have co-signed on private loans (which don’t qualify for rehab or federal consolidation).
- Family tax refunds could be at risk if you're filing jointly.
- And let’s be honest: the Boomerang Kid effect is real. If collections hit their income, your phone will probably ring before their servicer’s.
Now is the time to gently (or not so gently) check in. Ask where their loans stand. Help them explore repayment options. Consider gifting a few months of income-driven payments if it keeps them out of collections.
For PSLF Hopefuls: Don’t Assume, Confirm
If you or your kids are aiming for Public Service Loan Forgiveness (PSLF), now’s the time to double-check everything. PSLF requires:
- 120 qualifying payments (income-driven, on-time, and while working full-time for a qualifying employer)
- Loans must be Direct Loans
- Employer must be government or 501(c)(3)
The Department of Ed has cleaned up some of the program’s red tape, but errors and missed payments still happen. Go to studentaid.gov and:
- Use the PSLF Help Tool to confirm your employer is eligible.
- Make sure you’re on a qualifying repayment plan.
- File the PSLF Employment Certification Form annually (and every time you change jobs).
Bonus Tip: If you had older FFEL loans, consider consolidating them into a Direct Loan ASAP to keep eligibility intact.
Student loan debt isn’t just a young-person problem anymore. It’s a family issue, a financial planning issue, and—if ignored—a financial crisis waiting to happen.
If you (or your loved ones) are in default, don’t wait for the garnishment letter. Get a plan in place now. If PSLF is your goal, audit your strategy before any more time slips by.
And if this all feels like a bureaucratic swamp, we’re here to help. At Allworth, we specialize in looking around corners, especially when those corners are marked with government acronyms.
Disclosures: This article is intended for informational purposes only and should not be considered legal or financial advice. All student loan strategies should be evaluated based on individual circumstances.
This information is meant for educational purposes and not as direct tax or legal advice. Rules and regulations can shift anytime, so it’s always best to consult a qualified tax advisor, CPA, or attorney for guidance tailored to your specific situation.
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Past performance may not be indicative of future results. Asset allocation does not ensure profits or guarantee against losses; it is a method used to manage risk. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment, investment allocation, or investment strategy (including the investments and/or investment strategies recommended and/or undertaken by Allworth Financial), will be profitable, equal any historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Advisory services offered through Allworth Financial, an S.E.C. registered investment advisor. A copy of our current written disclosure statement discussing our advisory services and fees is available upon request. Allworth Financial is an Investment Advisor registered with the Securities and Exchange Commission. Securities offered through AW Securities, a Registered Broker/Dealer, member FINRA/SIPC.

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