The Department of Education has announced that collections on defaulted student loans will resume on May 5, affecting approximately 5 million borrowers nationwide. The office of Federal Student Aid will begin deducting funds from borrowers’ tax refunds, Social Security benefits, and eventually wages, as part of this initiative. Education Secretary Linda McMahon commented that these actions aim to reinstate the federal student loan portfolio into repayment, benefiting both borrowers and taxpayers.
The Trump administration has indicated that this move will end a five-year hiatus on collections, creating concern among many borrowers. About 5.3 million individuals who defaulted on loans prior to the pandemic will be impacted. A borrower is deemed in default if a loan payment is overdue for at least 270 days. Moreover, around 2.9 million borrowers are significantly late on payments, and 4 million have been reported to credit bureaus, nearing default.
Scott Buchanan, executive director of the Student Loan Servicing Alliance, emphasized the importance of addressing this issue immediately. The Department of Education plans to issue wage garnishment notices later in the summer, directing borrowers either to make monthly payments or enroll in an income-driven repayment plan.
Concerns have surfaced, with experts like Mike Pierce from the Student Borrower Protection Center warning about the hardships borrowers may face, especially within the current economic climate exacerbated by heightened tariffs. He noted that borrowers might soon see part of their paychecks or Social Security benefits garnished.
The Education Department is expected to contact borrowers in default before collections resume, providing resources and support to aid in repayment plan selection. Borrowers can check their loan status on the StudentAid.gov website. Those not in default will receive notices from loan servicers if they are delinquent on payments.
For borrowers in default, options like loan consolidation or rehabilitation exist, although full loan repayment remains the fastest, albeit least feasible, option. Betsy Mayotte from the Institute of Student Loan Advisors clarified that while loan consolidation provides new terms for repayments, loan rehabilitation can remove the default status from credit reports.
Amid ongoing disruptions and layoffs within the Department of Education, accessing help may become challenging for borrowers. Mayotte highlighted available alternatives, such as state ombudsmen, nonprofit resources, and federal loan calculators to aid borrowers. Buchanan advised taking advantage of the program’s flexibility to adjust repayment options according to changing circumstances.
In related developments, legal challenges remain concerning the Biden administration’s SAVE plan, aiming to base student loan payments on income. Secretary McMahon’s efforts to restart debt collection coincide with these evolving legal battles.
In conclusion, borrowers are urged to explore available resources and benefits under the federal student loan program to navigate these impending changes.
