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As of May 5, 2025, the federal government has resumed collections on defaulted student loans. This marks the official end of pandemic-era relief measures that began back in March 2020. For potential homebuyers in King County, especially first-time buyers, understanding how these changes impact your mortgage eligibility is more important than ever. 

Who will be impacted? This new policy primarily affects borrowers who are in default—that is, those who have not made a payment in over 270 days. More than 5 million borrowers are currently in default, with many more at risk. For these individuals, collection efforts such as wage garnishment, tax refund offsets, and Social Security reductions may resume.

What's Changing? The Department of Education is restarting forced collections on federal student loans that are in default:

• Tax refunds and other federal payments can now be seized and applied toward defaulted loans.
• Social Security garnishment will begin in early June.
• Wage garnishment notices will be sent this summer.

How This Impacts Homebuyers in Seattle - Seattle’s real estate market remains one of the most competitive and expensive in the country. Median home prices in King County hover around $1,000,000, meaning strong credit and low debt-to-income (DTI) ratios are essential for mortgage approval. 

What if your loans are in deferment? If your loans are in an approved deferment status (such as in-school, economic hardship, or unemployment deferment), you're not considered to be in default. That means:

• You should not be affected by the May 5 collection resumption.
• You should not face collection actions at this time.

But there’s an important caveat: your deferment must be active and properly documented. Plan ahead if your deferment or forbearance is ending. 

Where can I learn more about my student loan status? Please login into you account on the federal website https://studentaid.gov/fsa-id/sign-in/landing - you'll find within the dashboard with details on how much you owe and the status of your loans - whether they are in repayment, in deferment, in forbearance or in default. Warning will appear at the top if account is in default. Make sure you contact information is up to date both there and with your local servicer - the company that the government hired to administer your loans. 

When student loans go into default:

• Credit scores drop, reducing your chances of mortgage approval.
• Collections count as liabilities, negatively affecting your DTI.
• Wage garnishments can limit disposable income, weakening your application.

Steps to take if you're in default - Don't wait until collections begin. Here are options to resolve defaulted student loans:

• Loan Rehabilitation: Make 9 of 10 consecutive on-time "reasonable" payments.
• Loan Consolidation: Combine your loans into one Direct Consolidation Loan (note: this may reset progress toward forgiveness).
• Contact the Default Resolution Group: Start at StudentAid.gov and update your contact info.

Changes to Income-Driven Repayment Plans - The Biden administration's SAVE Plan, which ties payments to income and household size, is currently paused by court order. Borrowers enrolled in SAVE are in administrative forbearance, with:

• No payment due and
• No interest accruing but also no progress toward forgiveness or Public Service Loan Forgiveness (PSLF).

Other plans still available:

• IBR (Income-Based Repayment): 10% of discretionary income for 20-25 years.
• PAYE and ICR: Still active but forgiveness benefits are paused.

Public Service Loan Forgiveness (PSLF) remains active for government and nonprofit employees. However, borrowers in the SAVE plan must switch to IBR or another eligible plan to continue earning forgiveness credit. Documentation and payment records should be maintained carefully.

Local help for Washington borrowers - If you’re a Washington resident with student loan questions, contact: Washington Student Achievement Council at  wsac.wa.gov/loan-advocacy. They offer loan advocacy and borrower assistance.

Thinking about buying a home in Seattle? Student loans don’t have to be a dealbreaker. At Pacific Coast Financial, we work with local buyers every day to evaluate credit, income, and debt scenarios—including student loan situations. Contact us today for a personalized home financing consultation. Let’s create a clear roadmap from student debt to homeownership.

Related Resources:

• Free Student loan advisors
• Student debt crisis center
• The Federal student aid office FAQs