The Trump administration has announced that it will soon resume collections on defaulted student loans for the first time in five years, sparking concerns and worries among millions of borrowers across the country.
Why Are Collections Restarting?
The decision to resume collections is attributed to the COVID-19 pandemic, which led to a massive surge in student loan defaults. Nearly 8 million federal student loan borrowers were in default when the pandemic began, and the administration had announced a 60-day pause on collections in March 2020. However, the pause was extended repeatedly by the Biden administration until October 2023, but even then, collections did not resume. Consequences of Collections
Collections will affect 5.3 million borrowers who went into default before the pandemic. Borrowers who fail to make a loan payment for at least 270 days are considered in default. Additionally, 2.9 million borrowers are 61-90 days late on their loan payments, and another 4 million are in late-stage delinquency, approaching default.
- Wage garnishment: Borrowers can expect to have up to 15% of their disposable income seized.
- Tax refund withholding: Borrowers may have their tax refunds delayed or withheld.
- Social Security benefit garnishment: Borrowers may see their Social Security benefits reduced.
Options for Borrowers in Default
There are three primary ways borrowers can get out of default:
- Repay the loans in full: While this is the quickest option, it is not feasible for many borrowers.
- Loan consolidation: This involves paying off defaulted loans with new repayment terms.
- Loan rehabilitation: This requires making multiple consecutive on-time payments, typically nine.
Resources for Borrowers
The Department of Education will reach out to all borrowers in default through emails and social media posts. Borrowers can also check their status on the StudentAid.gov website, which shows how much debt they owe, their monthly payment amount, and a warning message if they are in default.
| Borrower Resources |
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| StudentAid.gov |
| Loan servicers |
| Nonprofit organizations |
Expert Insights
“Most borrowers are not in danger of default today, but in five months, they could be,” says Scott Buchanan, executive director of the Student Loan Servicing Alliance. “The Department of Education has a requirement to collect on these debts; they’re owed to the U.S. taxpayer.”
“It’s totally reasonable that people would be scared and confused and overwhelmed by the prospect of paying hundreds or thousands of dollars a month that they don’t have,” says Mike Pierce, executive director of the Student Borrower Protection Center. “The layoffs affected a lot of what I call ‘the helpers,’ and with everything else going on, the loan servicers are also really overwhelmed.”
“Now, a statute of limitations does apply to other consumer debts,” says Betsy Mayotte, president of the Institute of Student Loan Advisors (TISLA). “But there is no statute of limitations for federal student loans.”
What’s Next?
The Trump administration has stated that it will not provide mass loan forgiveness. Instead, it aims to relieve the burden on American taxpayers. However, the move has been criticized by many, who argue that it will exacerbate the financial burden on borrowers.
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