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Student Loan Default Collections to Resume Next Month
After a pandemic-era pause, the Department of Education will restart collections on defaulted student loans starting May 5th. This means that roughly 5.3 million borrowers could face wage garnishment and the seizure of tax refunds and other federal payments through the Treasury Department’s offset program.
The resumption of collections comes after legal challenges blocked President Biden’s attempts at widespread student loan forgiveness. Education Secretary Linda McMahon stated that restarting collections ensures American taxpayers aren’t burdened by “irresponsible student loan policies.”
Advocates for borrowers have expressed strong criticism of the decision. Mike Pierce, executive director of the Student Borrower Protection Center, called the move “cruel and unnecessary,” predicting it will worsen the financial struggles of working families.
The on-again, off-again nature of student loan policies under both the Trump and Biden administrations has left borrowers in a state of uncertainty. The payment pause initially began in 2020 under President Trump and was extended multiple times by the Biden administration before expiring in October 2024.
While tens of millions resumed payments then, a substantial number are currently behind, with less than 40% of borrowers reportedly current on their loans. Around 4 million borrowers are precariously close to default, between 91 and 180 days delinquent on their payments.
Adding to the challenges, staffing shortages within the Federal Student Aid office have made it difficult for borrowers to get assistance, according to Kristin McGuire, executive director of Young Invincibles. Further complicating matters are the fluctuating income-driven repayment plans.
A court decision in February temporarily halted some programs, and while the Education Department briefly removed applications for these plans, they were reinstated a month later. McGuire highlighted the confusion, noting that many borrowers default not out of unwillingness, but due to a lack of understanding and resources.
For those already in default, loan rehabilitation offers a path to avoid wage garnishment. Betsy Mayotte, president of The Institute for Student Loan Advisors, recommends contacting loan servicers to explore this option, which involves providing income and expense documentation and making nine consecutive on-time payments. Mayotte emphasizes that borrowers only have one opportunity for loan rehabilitation.
Despite the Supreme Court rejecting his broader forgiveness plan, President Biden has discharged over $183.6 billion in student loan debt for more than 5 million borrowers through other initiatives. Secretary McMahon, however, expressed concerns about these actions, arguing that they exceeded presidential authority. She emphasized that the Education Department and Treasury Department will manage the student loan program “responsibly and according to the law,” focusing on returning borrowers to repayment.