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What student loan borrowers need to know about involuntary collections

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U.S. Secretary of Education Linda McMahon smiles during the signing event for an executive order to shut down the Department of Education next to U.S. President Donald Trump, in the East Room at the White House in Washington, D.C., U.S., March 20, 2025. 

Carlos Barria | Reuters

In a Wall Street Journal op-ed, U.S. Secretary of Education Linda McMahon explained the U.S. Department of Education’s decision to restart collections on federal student loans that are in default — and what comes next for Federal student loan borrowers who are behind on their bills.

“On May 5, we will begin the process of moving roughly 1.8 million borrowers into repayment plans and restart collections of loans in default,” McMahon wrote in the op-ed Monday.

“Borrowers who don’t make payments on time will see their credit scores go down, and in some cases their wages automatically garnished,” McMahon wrote.

Next steps for borrowers

Federal student loan borrowers in default will receive an e-mail over the next two weeks making them aware of this new policy, the Education Department said.

These borrowers should contact the government’s Default Resolution Group to make a monthly payment, enroll in an income-driven repayment plan, or sign up for loan rehabilitation

The Education Department said it is extending the Federal Student Aid call-center operations with weekend hours as well updating a “loan simulator” to help borrowers calculate their repayment plans. There is also an artificial intelligence assistant, dubbed Aidan, to help with a financial strategy.

“We are committed to ensuring that borrowers are paying back their loans, that they are fully supported in doing so, and that colleges can’t create such a massive liability for students and their families, jeopardizing their ability to achieve the American dream,” McMahon wrote.

‘Be proactive’

Those borrowers who are behind in their required payments should avoid being placed in default by taking advantage of various options currently available to them to manage their education loans, advised Kalman Chany, a financial aid consultant and author of The Princeton Review’s “Paying for College.”

“Be proactive,” he said. “Best to take care of this as soon as possible, as the loan servicers’ and the U.S. Department of Education’s customer support will get busier the closer it gets to May 5.”

Student loan matching funds

The Education Department has not collected on defaulted student loans since March 2020. After the Covid pandemic-era pause on federal student loan payments expired in September 2023, the Biden administration offered borrowers another year in which they would be shielded from the impacts of missed payments. That relief period officially ended on Sept. 30, 2024.

“President Biden never had the authority to forgive student loans across the board, as the Supreme Court held in 2023,” McMahon wrote. “But for political gain, he dangled the carrot of loan forgiveness in front of young voters, among other things by keeping in place a temporary Covid-era deferment program.”

McMahon said restarting collections of loans in default was not meant “to be unkind to student borrowers.” Rather, the new policy intended to protect taxpayers. “Debt doesn’t go away; it gets transferred to others,” she said. “If borrowers don’t pay their debts to the government, taxpayers do.”

Currently, around 42 million Americans hold federal student loans and roughly 5.3 million borrowers are in default.

“It really is time to start repaying again,” Maya MacGuineas, president of the Committee for a Responsible Federal Budget said in a statement. “While a short repayment pause was justifiable early in the pandemic, that was five years ago — and it makes no sense today.”

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President Donald Trump in March signed an executive order aimed at dismantling of the Education Department after nominating McMahon for Education secretary. Trump suggested that she would help gut the agency. As part of this overhaul, federal student loan management was then shifted to the Small Business Administration.

Along with changes to the student loan system, the Trump administration revised some of the Department of Education’s income-driven repayment plans, which put at-risk borrowers in “economic limbo,” according to Mike Pierce, executive director at the Student Borrower Protection Center.

“For five million people in default, federal law gives borrowers a way out of default and the right to make loan payments they can afford,” Pierce said in a statement. “Since February, Donald Trump and Linda McMahon have blocked these borrowers’ path out of default and are now feeding them into the maw of the government debt collection machine.”

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Personal Finance

Here are the HSA contribution limits for 2026

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The IRS on Thursday unveiled 2026 contribution limits for health savings accounts, or HSAs, which offer triple-tax benefits for medical expenses.

Starting in 2026, the new HSA contribution limit will be $4,400 for self-only health coverage, the IRS announced Thursday. That’s up from $4,300 in 2025, based on inflation adjustments.

Meanwhile, the new limit for savers with family coverage will jump to $8,750, up from $8,550 in 2025, according to the update.   

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To make HSA contributions in 2026, you must have an eligible high-deductible health insurance plan.

For 2026, the IRS defines a high deductible as at least $1,700 for self-only coverage or $3,400 for family plans. Plus, the plan’s cap on yearly out-of-pocket expenses — deductibles, co-payments and other amounts — can’t exceed $8,500 for individual plans or $17,000 for family coverage.

Investors have until the tax deadline to make HSA contributions for the previous year. That means the last chance for 2026 deposits is April 2027.

HSAs have triple-tax benefits

If you’re eligible to make HSA contributions, financial advisors recommend investing the balance for the long-term rather than spending the funds on current-year medical expenses, cash flow permitting.

The reason: “Your health savings account has three tax benefits,” said certified financial planner Dan Galli, owner of Daniel J. Galli & Associates in Norwell, Massachusetts.  

There’s typically an upfront deduction for contributions, your balance grows tax-free and you can withdraw the money any time tax-free for qualified medical expenses. 

Unlike flexible spending accounts, or FSAs, investors can roll HSA balances over from year to year. The account is also portable between jobs, meaning you can keep the money when leaving an employer.

That makes your HSA “very powerful” for future retirement savings, Galli said. 

Healthcare expenses in retirement can be significant. A single 65-year-old retiring in 2024 could expect to spend an average of $165,000 on medical expenses through their golden years, according to Fidelity data. This doesn’t include the cost of long-term care.

Most HSAs used for current expenses 

In 2024, two-thirds of companies offered investment options for HSA contributions, according to a survey released in November by the Plan Sponsor Council of America, which polled more than 500 employers in the summer of 2024. 

But only 18% of participants were investing their HSA balance, down slightly from the previous year, the survey found.

“Ultimately, most participants still are using that HSA for current health-care expenses,” Hattie Greenan, director of research and communications for the Plan Sponsor Council of America, previously told CNBC.

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There’s a higher 401(k) catch-up contribution for some in 2025

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If you’re an older investor and eager to save more for retirement, there’s a big 401(k) change for 2025 that could help boost your portfolio, experts say.

Americans expect they will need $1.26 million to retire comfortably, and more than half expect to outlive their savings, according to a Northwestern Mutual survey, which polled more than 4,600 adults in January.

But starting this year, some older workers can leverage a 401(k) “super funding” opportunity to help them catch up, Tommy Lucas, a certified financial planner and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida, previously told CNBC.

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Here’s what investors need to know about this new 401(k) feature for 2025.

Higher ‘catch-up contributions’

For 2025, you can defer up to $23,500 into your 401(k), plus an extra $7,500 if you’re age 50 and older, known as “catch-up contributions.”

Thanks to Secure 2.0, the 401(k) catch-up limit has jumped to $11,250 for workers age 60 to 63 in 2025. That brings the max deferral limit to $34,750 for these investors.   

Here’s the 2025 catch-up limit by age:

  • 50-59: $7,500
  • 60-63: $11,250
  • 64-plus: $7,500

However, 3% of retirement plans haven’t added the feature for 2025, according to Fidelity data. For those plans, catch-up contributions will automatically stop once deferrals reach $7,500, the company told CNBC.

Of course, many workers can’t afford to max out 401(k) employee deferrals or make catch-up contributions, experts say.

For plans offering catch-up contributions, only 15% of employees participated in 2023, according to the latest data from Vanguard’s How America Saves report.

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However, your eligibility for higher 401(k) catch-up contributions hinges what age you’ll be on Dec. 31, Galli explained.

For example, if you’re age 59 early in 2025 and turn 60 in December, you can make the catch-up, he said. Conversely, you can’t make the contribution if you’re 63 now and will be 64 by year-end.   

On top of 401(k) catch-up contributions, big savers could also consider after-tax deferrals, which is another lesser-known feature. But only 22% of employer plans offered the feature in 2023, according to the Vanguard report.

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Trump’s tax package could include ‘SALT’ relief. Who could benefit

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U.S. Representative Josh Gottheimer (D-NJ) speaks during a press conference about the SALT Caucus outside the United States Capitol on Wednesday February 08, 2023 in Washington, DC. 

Matt McClain | The Washington Post | Getty Images

As debates ramp up for President Donald Trump‘s policy agenda, changes to a key tax provision could benefit higher earners, experts say. 

Enacted via the Tax Cuts and Jobs Act, or TCJA, of 2017, there’s a $10,000 limit on the federal deduction on state and local taxes, known as SALT, which will sunset after 2025 without action from Congress.

Currently, if you itemize tax breaks, you can’t deduct more than $10,000 in levies paid to state and local governments, including income and property taxes.

Raising the SALT cap has been a priority for certain lawmakers from high-tax states like California, New Jersey and New York. With a slim House Republican majority, those voices could impact negotiations.

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While Trump enacted the $10,000 SALT cap in 2017, he reversed his position on the campaign trail last year, vowing to “get SALT back” if re-elected. He has renewed calls for reform since being sworn into office.

Lawmakers have floated several updates, including a complete repeal, which seems unlikely with a tight budget and several competing priorities, experts say.

“It all has to come together in the context of the broader package,” but a higher SALT deduction limit could be possible, said Garrett Watson, director of policy analysis at the Tax Foundation.

Here’s who could be impacted.

How the SALT deduction works

When filing taxes, you choose the greater of the standard deduction or your itemized deductions, including SALT capped at $10,000, medical expenses above 7.5% of your adjusted gross income, charitable gifts and others.

Starting in 2018, the Tax Cuts and Jobs Act doubled the standard deduction, and it adjusts for inflation yearly. For 2025, the standard deduction is $15,000 for single filers and $30,000 for married couples filing jointly.

Because of the high threshold, the vast majority of filers — roughly 90%, according to the latest IRS data — use the standard deduction and don’t benefit from itemized tax breaks.

Typically, itemized deductions increase with income, and higher earners tend to owe more in state income and property taxes, according to Watson.

Who benefits from a higher SALT limit

Generally, higher earners would benefit most from raising the SALT deduction limit, experts say.

For example, one proposal, which would remove the “marriage penalty” in federal income taxes, involves increasing the cap on SALT deduction for married couples filing jointly from $10,000 to $20,000.

That would offer almost all the tax break to households making over $200,000 per year, according to a January analysis from the Tax Policy Center.

“If you raise the cap, the people who benefit the most are going to be upper-middle income,” said Howard Gleckman, senior fellow at the Urban-Brookings Tax Policy Center.

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Of course, upper-middle income looks different depending on where you live, he said.

Forty of the top fifty U.S. congressional districts impacted by the SALT limit are in California, Illinois, New Jersey or New York, a Bipartisan Policy Center analysis from before 2022 redistricting found.

If lawmakers repealed the cap completely, households making $430,000 or more would see nearly three-quarters of the benefit, according to a separate Tax Policy Center analysis from September.

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