As of May 5, the Department of Education will begin collecting on defaulted federal student loans, marking the first time in five years that borrowers will face enforcement actions such as tax return deductions, Social Security reductions, and potential wage garnishment.
The Federal Student Aid office announced that this move will impact more than 5 million borrowers whose loans defaulted before the pandemic. If a borrower hasn’t made a payment for at least 270 days, they are considered to be in default. This new policy comes after years of suspended collections due to the economic impacts of the pandemic.
Education Secretary Linda McMahon emphasized that this policy shift will benefit both taxpayers and borrowers by bringing the federal student loan portfolio back into repayment. However, many borrowers are now bracing for the financial impact, as millions remain behind on their payments. According to the Department, over 2.9 million borrowers are between 61 to 90 days overdue, while another 4 million are in “late-stage delinquency,” rapidly approaching default.
Scott Buchanan, executive director of the Student Loan Servicing Alliance, urges borrowers to act fast before they fall into default. “Most borrowers aren’t at risk right now, but they could be in just a few months,” he warned.
In addition to restarting collections, the Education Department will start sending notices for wage garnishment later this summer. Borrowers in default are being encouraged to sign up for income-driven repayment plans or make payments in the interim.
With many households already struggling financially due to rising living costs, experts like Mike Pierce, from the Student Borrower Protection Center, warn that these collections could push vulnerable families further into hardship, potentially leading to a reduction in Social Security benefits or wage garnishment.
The suspension of student loan collections began in 2020, as part of measures to address the economic fallout of the pandemic. While the Biden administration extended the pause, it ended in October 2023, with the Trump administration’s policies now resuming collections on defaulted loans.
The Department of Education has clarified that this move is aimed at reducing the burden on taxpayers, as federal student loans are considered public debt. There will be no mass student loan forgiveness.
For borrowers who are in default, there are several ways to resolve the issue. Repaying the loans in full is one option, but many borrowers won’t be able to afford this. More feasible options include loan consolidation or rehabilitation, which involves making a series of on-time payments to remove the default status from a credit report.
For borrowers worried about their status, the Department of Education will send notifications and offer guidance on selecting repayment plans. The online portal at StudentAid.gov can help borrowers check if they’re in default, view repayment details, and ensure their contact information is up to date.
Despite the looming restart of collections, borrowers are advised to explore available resources, such as loan servicers and nonprofit organizations, to find the best repayment plan suited to their financial situation. While there are concerns about overburdened staff and long wait times, there are options available to those who take action promptly.
