Defaulted Student Loans Face Collections, WASHINGTON — The Education Department will begin collection on defaulted student loans next month, including salary garnishment for possibly millions of borrowers, officials announced Monday.
5.3 Million Borrowers Currently in Default
Currently, around 5.3 million borrowers are in arrears on federal student loans.The Trump administration’s action concludes a period of tolerance that started during the COVID-19 outbreak. Since March 2020, the government hasn’t sent any federal student loans to collections – including defaulted ones. The Biden administration tried multiple times to wipe out student debt completely, but courts stopped each attempt.
Collections Resume May 5: What Borrowers Face
Taxpayers won’t have to back risky student loan schemes anymore,” Education Secretary Linda McMahon emphasized.
Beginning May 5, the department will begin involuntary collection via the Treasury Department’s offset program, which withholds government payments, such as tax refunds, federal wages, and other benefits, from those who owe the government money. Following a 30-day warning, the agency will begin garnishing wages for defaulted debtors.
Borrower Advocates Slam ‘Cruel’ Policy Shift:
Advocates decried the choice to send debt to collectors, claiming that between the Biden and Trump administrations altering student loan policy had caused whiplash and uncertainty for borrowers.
“This is cruel, unnecessary and will further fan the flames of economic chaos for working families across this country,” said Mike Pierce, executive director of the Student Borrower Protection Centre.
Many debtors have already begun preparing for owing responsibilities.
President Donald Trump suspended federal student loan payments and interest accumulation in 2020 as a temporary reprieve for student debtors. The Biden administration prolonged the payment halt many times until 2023; a last grace period for loan repayments finished in October 2024. That meant millions of Americans had to begin paying once again.
Those who fail to pay for nine months enter default, which shows on their credit record and may lead to collection action.
Alarming Delinquency Rates Emerge:
Apart from the debtors currently in default, almost 4 million more are 91 to 180 days behind on their loan payments. Department officials said less than 40% of all borrowers are current on their student loans.
Kristin McGuire, executive director of Young Invincibles, a group concentrating on economic security for younger adults, said layoffs at the Federal Student Aid office at the Education Department have made it more difficult for students to have their enquiries addressed even if they wished to pay their loans.
Questions are flying, too, regarding certain income-driven repayment schemes after a February court decision that suspended some of the payment plans. The Biden administration’s SAVE Plan offered struggling borrowers a break – pausing their payments while interest kept growing. In February, the Education Department removed applications for income-driven repayment programs—which link a monthly payment to a person’s income level—only to restore them online a month later.
Right now, things are very challenging to grasp. Every day, things are changing, McGuire said. Just because individuals don’t want to pay their debts we cannot infer they are in default. People are in default because they cannot pay their debts and because they lack knowledge on how to pay their loans.
How Loan Rehabilitation Works (And Its Limits)
Getting into debt rehabilitation is one way for those in default to prevent salary garnishment, according to Betsy Mayotte, president of The Institute for Student debt Advisors.
Borrowers have to request their loan servicer to be included into such a scheme. Usually, servicers want evidence of costs and income to determine a payment amount. Mayotte explained: After nine straight months of on-time payments, borrowers get cleared from default status. But here’s the catch – once you’ve rehabilitated a loan, you can’t do it again.
Partial Wins: Biden’s $183.6B in Targeted Relief:
Biden supervised the cancellation of school debts for almost five million debtors. Though the Supreme Court turned down his flagship plan for general relief, he waived over $183.6 billion in student debts under increased forgiveness policies.
McMahon stated on Monday that Biden had overstepped.
The Department of Education will, going forward, guide the student loan program responsibly and legally with help from the Department of Treasury, therefore enabling borrowers to return to repayment—both for their own financial health and for the economic future of our country.