Debt collection to resume for student loan borrowers in default after 5-year break

For the first time in five years, defaulted student loan borrowers will face consequences.

The Trump administration announced Monday that borrowers currently in default will be referred for collection starting May 5, a two-week warning after a long saga of COVID-related repayment pauses and failed efforts by former President Joe Biden to discharge billions in student debt.

“The current administration believes that American taxpayers can no longer serve as collateral for student loans. Student loan debt must be paid back,” a senior Department of Education (DOE) official told the Daily Caller News Foundation.

The White House discussed the collection plans at a press conference Tuesday.

This is the first time involuntary collections will be used since the COVID-19 pandemic began in March 2020. Collection will be made through wage garnishment after a 30-day notice, DCNF reported. The government can also use tools such as withholding income tax refunds or garnishing parts of Social Security and other federal benefits, the Associated Press reported. 

Default occurs when a loan is unpaid for more than nine months. Default also appears on a person’s credit report. 

“The federal government student loan portfolio has continued to grow and we’ve got a record amount of our borrowers that are at risk of or in delinquency and default,” the official said. “The federal student loan portfolio is headed towards a fiscal cliff if we don’t start repayment and collections.” 

Currently, an estimated 5.3 million borrowers are in default, AP reported. Out of 35 million total borrowers, about 7.4 million are late or delinquent, 4 million are about to fall into delinquency and 9 million are in forbearance, which is a temporary break from having to make payments. Only about 1 in 4 borrowers is current on their loans. Total student debt exceeds $1.6 trillion, which equals 5% of the nation’s $30 trillion economy. 

The DOE plans a “significant outreach effort to make borrowers aware of the obligations they have” and will notify them of income-based and other repayment programs that are available. 

Borrowers can also visit the DOE’s Default Resolution Group to make payments, enroll in a repayment plan or sign up for loan rehabilitation, which can be done once in the life of the loan. 

The official, whom DCNF did not identify, said there is a need for Congress to reform the student loan program. 

“We wholly believe that Congress has a role to play in fixing the higher education system that puts students in a position where they can afford their loan payments,” the official said. “So we’re looking forward to working with Congress on their efforts to streamline loan repayments as well as lowering college costs.” 

Ideas include simplifying the system by reducing the number of payment plans, imposing “common sense” loan limits and holding colleges accountable if students in certain programs fail to pay their loans. One proposal would tax university endowments to pay off the loans. 

Another idea is to target PLUS loans, which have helped drive up college costs since they allow graduate students and parents of undergraduates to borrow almost unlimited funds. Those loans would then be handled by the private sector. 

The House budget proposal would eliminate PLUS by 2028 and cut several other programs that lower costs for borrowers, but the Senate’s version did not include these cuts.  

The two chambers are trying to work through their differences and pass a budget by May 26. The budget would then go to President Donald Trump for approval.