Washington – Since the pandemic, federal student loan borrowers have been largely shielded from the most severe consequences of not repaying their loans.
That is about to change—and quickly.
Linda McMahon, secretary of the United States Department of Education, announced that involuntary collections for defaulted borrowers will resume on May 5.
In two weeks, loan holders will begin deducting funds from the paychecks of borrowers who have missed payments for 270 days or more. They will also begin to collect on other federal payments, such as tax refunds and Social Security benefits.
The change, announced by McMahon on April 21 and anticipated for months, represents the last major cog in the wheel of the United States’ student loan repayment system to resume spinning since the coronavirus pandemic.
Collections for defaulted borrowers, which number over five million, have been paused since March 2020. After a years-long hiatus, former President Joe Biden resumed monthly student loan payments in the fall of 2023.
However, collection on loans, the harshest penalty for borrowers, had yet to resume by the time President Donald Trump took office for the second time. During the Biden administration, the Education Department delayed involuntary collections until after the 2024 presidential election.
As court battles rage over the future of major repayment programmes, much of the federal student loan system remains paralysed. According to the Education Department, slightly more than one-third of borrowers (38%) are in repayment and on time with their student loans. Over 40 million Americans still owe money on their federal student loans.
Approximately two million borrowers are in interest-free forbearance, which means they do not have to repay their loans indefinitely, while the courts determine the legality of the Saving on a Valuable Education, or SAVE, plan.
The Biden administration described the programme, which bases monthly bills on borrowers’ incomes, as the “most affordable repayment plan ever.”
On April 21, McMahon accused the Biden administration of misleading borrowers and pledged to “shepherd the student loan programme responsibly.”
“American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies,” according to her statement.
Borrower advocates criticised the change. According to Mike Pierce, executive director of the Student Borrower Protection Centre, federal law allows borrowers to make payments that are affordable.
However, many of the programmes that enable such affordability, he noted, have been halted or threatened since Trump took office.
“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,” said Mr. Mueller. “This is cruel, unnecessary and will further fan the flames of economic chaos for working families across this country.”
All borrowers in default will be notified of their status via email within the next two weeks, according to Education Department officials. In those emails, the agency will urge borrowers to pay their bills, enrol in an income-driven repayment plan, or apply for loan rehabilitation or consolidation.
