For roughly the past five years, federal student loan borrowers who fell behind on their bills didn’t need to worry about the usual consequences, including the garnishment of their wages and retirement benefits.

That will soon change.

In a U.S. Department of Education memo obtained by CNBC, dated Jan. 13, a top Biden administration official laid out for the first time details of when collection activity may resume. In some cases, borrowers could feel the pain as early as this summer.

By late 2024, the number of federal student loan borrowers in default was roughly 5.5 million, the department’s memo said.

Here’s what borrowers struggling to pay their bills need to know about the risks ahead.

Later this year, for the first time, borrowers in default should be able to enroll in the Income-Based Repayment plan “and have a pathway to forgiveness,” the memo says.

Currently, federal student loan borrowers need to exit default before they can access any of the income-driven repayment plans, including the IBR. These plans aim to set borrowers’ monthly bills at a number they can afford, and many end up with a $0 monthly payment.

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Meanwhile, the Biden administration also moved to protect a higher amount of people’s Social Security benefits from the department’s collection powers. When the consequences of defaults resume, those with a monthly Social Security benefit under $1,883 should be able to protect those benefits from offset, compared with the current protected amount of $750 in place today.

“Available data suggest that these actions will effectively halt Social Security offsets for more than half of affected borrowers and reduce the offset amount for many others,” the memo said.

The White House and the U.S. Department of Education did not respond to a request for comment on how the Trump administration plans to handle those measures.

If you don’t know who your loan servicer is, you can find out at Studentaid.gov.

Those who aren’t already in default should contact their loan servicer to avoid that outcome, Mayotte said. You may be able to lower your monthly payments on an income-driven repayment plan or pause your payments through a deferment or forbearance.

The Federal Reserve is expected to hold interest rates steady at the end of its two-day meeting next week, despite President Donald Trump’s comments Thursday that he’ll “demand that interest rates drop immediately.”

So far, the central bank has moved slowly to recalibrate policy after hiking its key benchmark 5.25 percentage points between 2022 and 2023 in an effort to fight inflation, which is still running above the Fed’s 2% mandate. On the campaign trail, Trump said inflation and high interest rates are “destroying our country.”

But for consumers struggling under the weight of high prices and high borrowing costs, there is little relief in sight, for now.

“Anyone hoping for the Fed to ride in as the cavalry and rescue you from high interest rates anytime soon is going to be really disappointed,” said Matt Schulz, LendingTree’s chief credit analyst. 

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The Federal funds rate, which the U.S. central bank sets, is the rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, the Fed’s moves still affect the borrowing and savings rates consumers see every day.

Once the Fed funds rate eventually comes down, consumers may see their borrowing costs decrease across various loans such as mortgages, car loans and credit cards, making it cheaper to borrow money. 

Here’s a breakdown of how it works:

Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark. But even though the central bank cut its benchmark interest rate by a full percentage point last year, credit card costs remained elevated.

Card issuers are often slower to respond to Fed rate decreases than to increases, said Greg McBride, Bankrate’s chief financial analyst.

Currently, the average credit card rate is more than 20%, according to Bankrate — near an all-time high.

In the meantime, delinquencies are higher and the share of credit card holders making only minimum payments on their bills recently jumped to a 12-year high, according to a Philadelphia Federal Reserve report.

“That means it is maybe more important than ever to get that high-interest debt under control,” Schulz said.

Mortgage rates have risen in recent months, even as the Fed cut rates.

Because 15- and 30-year mortgage rates are fixed and mostly tied to Treasury yields and the economy, they are not falling in step with Fed policy. Since most people have fixed-rate mortgages, their rate won’t change unless they refinance or sell their current home and buy another property. 

“Most mortgage debt is fixed, so existing homeowners are not impacted,” Bankrate’s McBride said. “It just adds to the affordability woes for would-be homebuyers and is keeping home sales on ice.”

The average rate for a 30-year, fixed-rate mortgage is now 7.06%, according to Bankrate.

Auto loan rates are fixed. But these debts are one of the fastest-growing sources of consumer credit outside of mortgage lending. Payments have been getting bigger because car prices are rising, driving outstanding auto loan balances to more than $1.64 trillion.

The average rate on a five-year new car loan is now around 7.47%, according to Bankrate.

“With the Fed signaling that any rate cuts in 2025 will be gradual, affordability challenges are likely to persist for most new vehicle buyers,” said Joseph Yoon, Edmunds’ consumer insights analyst.

“Although further rate cuts in 2025 could provide some relief, the continued upward trend in new vehicle pricing makes it difficult to anticipate significant improvements in affordability for consumers in the new year,” Yoon said. 

Federal student loan rates are also fixed, so most borrowers aren’t immediately affected by any Fed moves.

However, undergraduate students who took out direct federal student loans for the 2024-25 academic year are paying 6.53%, up from 5.50% in 2023-24. Interest rates for the upcoming school year will be based in part on the May auction of the 10-year Treasury note.

Private student loans tend to have a variable rate tied to the prime, Treasury bill or another rate index, which means those borrowers are typically paying more in interest. How much more, however, varies with the benchmark.

As a result of the Fed’s string of rate hikes in recent years, top-yielding online savings accounts have offered the best returns in more than a decade and still pay nearly 5%, according to McBride.

“The good thing about the Fed being on the sidelines is that savers are going to be able to enjoy these inflation-beating yields for some time to come,” McBride said.

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Many young adults have financial stress, and experts say there’s a simple safety net that could help.

About 61% of surveyed Americans of ages 18 to 35 are financially stressed, according to a new Intuit survey. About 21% of respondents say their stress has gotten worse over the past year.

Some of the biggest stressors included high cost of living, job instability and growing housing costs. Of those who identified as financially stressed, 32% said handling unexpected emergencies like medical bills, car repairs and home maintenance trigger their anxiety with cash, the report found.

The site polled 2,000 adults of ages 18 to 35 in December.

A new report by Bankrate reflects a similar picture. The report found that older generations are more likely to say they could pay for an unexpected $1,000 emergency expense from their savings.

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About 59% of baby boomers, or those of ages 61 to 79, can pay for a $1,000 surprise expense from savings. The cohort is followed by 42% of Gen Xers, or of ages 45 to 60. 

Yet, only 32% of millennials — ages 29 to 44 — and 28% of Gen Z adults — ages 18 to 28 — have the cash readily available, according to the survey, which polled 1,039 respondents ages 18 and older in early December.

“The youngest generations are those who are earliest in their financial journey,” said Mark Hamrick, a senior economic analyst at Bankrate.

Financial emergencies can catch us by surprise, from needing a locksmith because you lost your keys to unexpectedly losing your job. The best thing you can do to prepare is have savings set aside and carefully using lines of credit, experts say.

“For emergencies, it’s really having that cash reserve in place. That is the financial plan,” said certified financial planner Clifford Cornell, an associate financial advisor at Bone Fide Wealth in New York City.

Having an emergency savings fund is like having a bulletproof vest, Hamrick explained.

“They won’t save you in all outcomes, but it’s a good start,” he said.

Many Gen Zers need to gear up. About 80% of the cohort are more likely than other generations to worry about not having enough money to cover living expenses if they lost their primary job, per Bankrate data.

That’s compared to 72% of millennials, 72% of Gen Xers and 58% of baby boomers.

“We’re really setting ourselves up for failure if we don’t have sufficient emergency savings,” Hamrick said.

While interest rates have come down from peak highs, the best high-yield savings accounts offer on average 4.31% annual percentage yields, or APYs, per Bankrate data.

To compare, traditional savings accounts offer a 0.51% APY on average nationwide, per DepositAccounts.

For every $1,000 you add into a HYSA, you can earn about $40 a year in interest at those rates. While $40 doesn’t sound like a lot at first blush, it’s significantly higher than what you’d earn in a traditional savings account, Cornell said. 

There are many HYSAs available. As you consider your options, you want to double-check the one you pick is FDIC-insured, which protects your deposits at insured banks and savings associations if the company fails.

2. Calculate how much you can save every month

Figuring out how much cash you can save will depend on how much money you earn versus spend in a given month, Cornell said. 

Some rules of thumb can be good starting points. For instance, the 50-30-20 rule is a budget framework that allocates 50% of your income toward essentials like housing, food and utilities, 30% toward “wants” or discretionary spending and the remaining 20% to savings and investments.

Yet, it’s not easy to follow, especially for a young person starting out their career — saving 20% of their income can be a tall order, Cornell said.

It’s fine to start off with less, and look for opportunities in your budget to save more. For example, saving part of an annual raise or tax refund.

3. Set a goal

First aim for three months’ worth of expenses as a goal, Cornell said. Once you meet that goal, consider the next: advisors often recommend you ultimately have three to six months, but some people may benefit from even more. In some cases, it’s a year or more.

Imagine having enough cash that can sustain you during a long stretch of unemployment: “It’s kind of like a pillow or a safety blanket,” he said. 

The more variable your income — say, if you depend on commissions or bonuses, or your income fluctuates every month — the more savings you’ll need to hold you over in case something comes up, Cornell said. 

Keep in mind that coming up with enough savings to tide you over for three months can take a long time. While saving so much can be daunting, experts say even having a small buffer of a few hundred dollars can help.

For instance, the Federal Reserve measures how many adults are able to cover a $400 emergency cost, a much lower benchmark.

Even a small level of savings may be enough to cover minor emergencies, or help offset how much you need to borrow.