The Trump administration has announced that it will soon recommence the collection of defaulted student loans, marking the first such action in five years. This decision has raised concerns among millions of borrowers nationwide. The Department of Education disclosed that its Federal Student Aid office would restart collections on May 5, allowing it to deduct funds from tax refunds, Social Security benefits, and potentially wages of borrowers who have defaulted on their loans.
Education Secretary Linda McMahon stated that these actions aim to transition the federal student loan portfolio back into repayment, benefiting both borrowers and taxpayers. The change is expected to impact approximately 5.3 million borrowers who defaulted before the pandemic began. A borrower is classified as being in default when they fail to make a loan payment for at least 270 days.
Scott Buchanan, executive director of the nonprofit trade group Student Loan Servicing Alliance, emphasized the importance of addressing this issue promptly, as many borrowers are not currently in danger of delinquency but could be at risk in the coming months.
The Department of Education announced plans to issue wage garnishment notices later this summer, potentially seizing up to 15% of a borrower’s disposable income. Meanwhile, it is encouraging borrowers in default to begin making monthly payments or enroll in an income-driven repayment plan.
Mike Pierce, executive director of the Student Borrower Protection Center, acknowledged the fear and confusion borrowers may feel about resuming monthly payments they cannot afford. The current economic climate, coupled with rising costs due to tariffs, adds further strain on families with student debt.
Experts consulted by NPR provided insight into borrowers’ options as collections resume. Nearly 8 million borrowers were in default when the pandemic began, and the initial pause on collections was announced by the Trump administration in March 2020. The Biden administration extended the pause on federal student loan payments multiple times until October 2023; however, collections have now picked up once more.
Betsy Mayotte, president of the Institute of Student Loan Advisors (TISLA), explained that the resumption of loan collections was inevitable and not a new policy but rather the restoration of an existing one. She noted that the Department of Education is obligated to collect on debts owed to U.S. taxpayers.
The Trump administration, which opposes broad-based student loan forgiveness, reaffirmed its stance that student and parent borrowers, not taxpayers, must repay their student loans.
To help borrowers understand if they are affected, the Department of Education plans to contact all those in default before May 5 through emails and social media. Borrowers can also check their status on the StudentAid.gov website, which provides detailed information about their loans.
For borrowers in default, several options are available to exit this status. The quickest method is full loan repayment, though it may be challenging for most. Alternatives include loan consolidation and rehabilitation, which can remove the default status from credit reports or offer lower repayment options.
The Department of Education is experiencing significant reductions in workforce as a result of federal workforce cuts, potentially complicating loan navigation for borrowers. Despite these challenges, there are resources available to assist borrowers, including advocates, state ombudsmen, nonprofits, and online information.
Scott Buchanan advises borrowers to utilize the loan calculator on the federal student aid website to estimate their payments and select the best repayment plan, highlighting the flexibility of the federal student loan program in adjusting repayment options according to changing circumstances.
