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Student Loan Default Crisis Looms as Pandemic-Era Pause Ends
Millions of Americans face a looming crisis as the Department of Education restarts collections on defaulted federal student loans. The pandemic-era pause, which began roughly five years ago, ends on May 5, leaving borrowers scrambling to find solutions amidst a challenging economic landscape.
Davina Rush, a single mother from Florida, exemplifies the struggles many borrowers face. After a car accident nearly claimed her son’s life three years ago, she became his full-time caregiver and stopped paying her $49,000 student loan debt.
Now, she’s one of the millions at risk of having benefits and wages garnished. “If they took anything out of my pay, it would literally be taking food out of our mouths,” Rush said, worried about the impact on her and her 23-year-old son, who suffers from a severe brain injury.
The resumption of collections comes as inflation continues to strain household budgets. “Things like housing and eggs and lettuce cost a lot more than they did before,” noted Betsy Mayotte, president of the Institute of Student Loan Advisors. “So what might have been affordable before might not be affordable now.”
Education Secretary Linda McMahon has defended the decision to restart collections, arguing that unpaid debts burden taxpayers. However, borrowers like Leslie Gray, a therapist in Kansas City, Missouri, found the payment pause a lifeline.
It allowed her to address medical debt accrued during her battle with breast cancer. Now facing $185,000 in student loan debt, Gray plans to sell her home and live in an RV on her parents’ property.
She expressed pride in her career and the sacrifices she’s made, including paying her loans when possible. But rising costs and stagnant wages have made her debt increasingly unmanageable.
Gray said she would willingly pay a reasonable amount but has struggled to get clear guidance from the Education Department. The Department responded to inquiries about these communication difficulties by outlining steps taken to inform borrowers, including extended call center hours and emails with instructions on contacting loan servicers.
The Department of Education has warned that the number of defaulted borrowers could reach 10 million in the coming months. Currently, over 5 million are in default, with an additional 4 million delinquent on their payments.
The agency urges borrowers to contact the Default Resolution Group, make monthly payments, enroll in income-driven repayment plans, or pursue loan rehabilitation. Bankruptcy remains a possibility for those facing extreme financial hardship, though the process and its potential outcomes remain uncertain under the current administration.
Experts advise borrowers to address their loan situations proactively before defaulting, as additional fees and the loss of flexible repayment options can exacerbate the problem.
Adding another layer of complexity, the Department of Government Efficiency’s efforts to reduce the federal workforce have impacted some borrowers. Jim Mawhinney, a former IRS employee, accepted a buyout after only six months, fearing eventual termination.
While he’ll receive a paycheck until September, he now faces an uncertain job market with $100,000 in student loan debt accumulated over 30 years. Mawhinney expressed his frustration, stating, “It is ironic that they are going to start to garnish federal wages after forcing me to leave my federal job where I could pay my loans on my own.”
He voiced his fear about the future, highlighting the widespread anxiety among borrowers as the May 5 deadline approaches.