The Education Department is set to recommence the collection of defaulted student loans next month, signaling the end of a leniency period that began during the COVID-19 pandemic. This move will affect millions of borrowers, as officials estimate approximately 5.3 million individuals are currently in default on their federal student loans.
The decision follows a hiatus in collections that has been in place since March 2020. During this time, no federal student loans, including those in default, were referred for collection. The Trump administration’s latest announcement marks a significant shift in policy, as the Biden administration’s attempts to provide broad loan forgiveness were halted by court rulings.
Starting May 5, the Education Department will initiate involuntary collection measures through the Treasury Department’s offset program. This includes withholding government payments such as tax refunds, federal salaries, and other benefits from individuals with outstanding debts to the government. Borrowers in default will receive a 30-day notice before wage garnishments begin.
The directive has been met with criticism from advocates who argue that borrowers are facing confusion and instability due to the fluctuating student loan policies between the Biden and Trump administrations. There is concern that this approach could exacerbate economic challenges for working families across the nation.
Since the pandemic, many borrowers have been preparing for the resumption of loan obligations. Under an initiative by President Donald Trump in 2020, federal student loan payments and interest accrual were temporarily paused. This relief measure was extended several times by the Biden administration, concluding in October 2024, requiring millions to resume payments.
Borrowers who fail to make payments for nine months are classified as in default, which negatively impacts their credit scores and subjects them to collections. Currently, in addition to those already in default, around 4 million borrowers are 91 to 180 days late on their payments. Less than 40% of all borrowers are up to date with their student loans, according to department officials.
Compounding the situation, layoffs at the Federal Student Aid office have made it challenging for borrowers to obtain assistance. Furthermore, a recent court ruling in February halted some income-driven repayment programs, creating additional uncertainty. Borrowers in the Biden-era SAVE Plan, which allowed forbearance with interest accrual, faced disruptions as applications for income-driven repayment programs temporarily went offline.
For those in default, loan rehabilitation remains an option to avoid wage garnishment. Borrowers can request to enter this program through their loan servicer, typically requiring proof of income and expenses to determine payment amounts. Successful on-time payments for nine consecutive months can remove them from default status. However, loan rehabilitation is a one-time opportunity.
President Biden’s administration has managed to cancel student loans for over 5 million borrowers, with more than $183.6 billion waived through expanded forgiveness programs, despite legal challenges blocking his broader relief proposal.
Education Secretary Linda McMahon emphasized the importance of adhering to the law in administering the student loan program responsibly, aiming to aid borrowers in resuming repayment for the benefit of both individual financial health and the national economy.