Trump administration to resume collecting defaulted student loans May 5

The federal government will once again collect payments on defaulted federal student loans starting May 5, the U.S. Department of Education announced Monday, April 21. Collecting defaulted student loans has been paused since March 2020, when the COVID-19 pandemic brought the world to a halt.

The Biden administration effectively extended the pause while in office. Now, the Trump administration wants student loan borrowers in default to start making payments again.

Millions of borrowers impacted by resumption of payments

According to a news release, the department says 42.7 million borrowers owe more than $1.6 trillion in student debt, and more than 5 million borrowers are in default and haven’t made a payment in more than 360 days.

An additional 4 million borrowers are in late-stage delinquency, which is defined as more than 90 days without making a payment.

Only 38% of borrowers are in repayment and up to date on paying off their loans.

Education secretary criticizes past loan forgiveness efforts

U.S. Secretary of Education Linda McMahon said in the statement that hundreds of billions of dollars have already been transferred to taxpayers.

“American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies,” McMahon said. “The Biden administration misled borrowers: the executive branch does not have the constitutional authority to wipe debt away, nor do the loan balances simply disappear.”

Borrower advocates condemn administration’s actions

Advocates with the Student Borrower Protection Center said earlier this year that the Trump administration blocked access to affordable student loan payments by removing income-driven repayment and consolidation applications and quietly ordered loan servicers to stop processing them.

In a statement emailed to Straight Arrow News, the Student Borrower Protection Center’s executive director, Mike Pierce, responded to Monday’s announcement, saying, “For five million people in default, federal law gives borrowers a way out of default and the right to make loan payments they can afford. Since February, Donald Trump and Linda McMahon have blocked these borrowers’ path out of default and are now feeding them into the maw of the government debt collection machine. This is cruel, unnecessary, and will further fan the flames of economic chaos for working families across this country.”

In March, the Trump administration said the application was paused to comply with last month’s 8th Circuit Court injunction halting Biden’s SAVE Plan and parts of other income-driven repayment (IDR) plans.

Department outlines next steps for borrowers in default

Education Department officials said they’re going to help defaulted borrowers return to repayment in accordance with the law.

Here’s how they say it’s going to work:

• The Office of Federal Student Aid (FSA) will restart its Treasury Offset Program on Monday, May 5.
• Borrowers in default will receive an email within the next two weeks encouraging them to contact the Default Resolution Group, which will help them make a monthly payment schedule, set up an IDR plan, or sign up for loan rehabilitation.
• If a defaulted borrower fails to make payments, the FSA will eventually send notices for employers to begin administrative wage garnishment.

Wage garnishment set to resume for non-compliant borrowers

This means the federal government can set up a debt collection process with a non-governmental employer to withhold up to 15% of an employee’s disposable income. That money will go directly to the agency to pay off the debt.

“All FSA collection activities are required under the Higher Education Act and conducted only after student and parent borrowers have been provided sufficient notice and opportunity to repay their loans under the law,” the news release from the agency states.