Charles Esther
On May 5, President Donald Trump’s administration officially restarted involuntary collections on defaulted student loans.
This follows a five-year pause that began during the early COVID-19 pandemic and continued under President Joe Biden.
Borrowers in default are now once again facing the harshest consequences for failing to make their payments.
These consequences include the seizure of federal benefits like tax refunds, Social Security checks, and eventual wage garnishment.
Notices Sent to Defaulted Borrowers
The Department of Education has announced that 195,000 defaulted student-loan borrowers will begin receiving 30-day notices.
These notices were sent out by the Treasury Department, warning that their federal benefits are at risk of being withheld through the Treasury Offset Program.
“The first monthly benefit checks subject to offset are those scheduled for early June,” the department said in a statement.
Later in the summer, the remaining 5.3 million defaulted borrowers will be notified that their earnings will be subject to administrative wage garnishment.
Defaulting on Federal Student Loans
Federal student-loan borrowers typically enter default when they fail to make a payment for more than 270 days.
The Education Department recommends that borrowers in default contact the Default Resolution Group to arrange a payment plan or enter loan rehabilitation.
Loan rehabilitation requires nine consecutive monthly payments at an amount determined by the servicer.
Potential Delay in Consequences for Some Borrowers
Preston Cooper, a senior fellow at the American Enterprise Institute, suggested that some borrowers might not face immediate consequences.
“The government has to locate them first, and it also has to find some income or wages to garnish,” Cooper explained.
This delay could give borrowers time before they experience the full impact of the restart in collections.
Struggling Borrowers Speak Out
Some defaulted student-loan borrowers have expressed concern over their ability to resume payments.
James Southern, a 63-year-old borrower, shared that the projected $1,500 monthly payment is simply unaffordable for him.
“If they are steadfast on this $1,500 a month, then again, there’s no way I can pay that,” Southern said.
Southern continued, “So they’re going to have to come and take it from me, and then I’ve got to figure out somehow how to live past that point.”
Department of Education’s Call to Universities
In response to the restart of collections, the Department of Education sent a letter to universities.
The letter asks universities to help student-loan borrowers by reminding them of available resources to pay off their debt and avoid default.
“As we begin to help defaulted borrowers back into repayment, we must also fix a broken higher education finance system,” said Education Secretary Linda McMahon.
McMahon emphasized that the rising cost of tuition must be addressed alongside efforts to help students manage their loans.
