In addition to reminding colleges and universities of their “shared responsibility” to make sure taxpayers aren’t burdened with unpaid bills, the Department of Education initiated collecting on federal student loans that had fallen into default on Monday.
Due to the COVID-19 epidemic, collections had been suspended since March 2020. The resumption is anticipated to affect around 5.3 million borrowers who are currently in arrears on their federal student loans.
“As we begin to help defaulted borrowers back into repayment, we must also fix a broken higher education finance system that has put upward pressure on tuition rates without ensuring that colleges and universities are delivering a high-value degree to students,” Education Secretary Linda McMahon stated.
“For too long, insufficient transparency and accountability structures have allowed US universities to saddle students with enormous debt loads without paying enough attention to whether their own graduates are truly prepared to succeed in the labor market,” she continued.
The Department of Treasury on Monday sent a 30-day notice to about 195,000 borrowers who had fallen behind on their student loan payments, alerting them that the Treasury Offset Program, which collects debts by garnishing federal and state payments, including federal tax refunds, will apply to their federal benefits.
According to the Education Department, offsets will start in early June, and later this summer, Treasury will notify all 5.3 million delinquent borrowers that administrative wage garnishment would be applied to their paychecks.
A “Dear Colleague Letter” alerting higher education institutions of their duty to assist student loan borrowers under the Higher Education Act of 1965 was sent by McMahon on the same day that collections commenced.
“Although borrowers have the primary responsibility for repaying their student loans, institutions play a key role in the department’s ongoing efforts to improve loan repayment outcomes, especially as the cost of college set solely by institutions has continued to skyrocket,” McMahon stated.
In addition to offering “clear and accurate information about repayment to borrowers through entrance and exit counseling,” the education secretary urged colleges to “refocus and expand” their efforts at advising and counseling students against taking out federal loans.
According to McMahon, colleges must maintain default rates “low” under the Higher Education Act. If defaults surpass 40% in a single year or 30% for three consecutive years, schools risk “losing eligibility for federal student assistance.”
“[W]e strongly urge all institutions to begin proactive and sustained outreach to former students who are delinquent or in default on their loans to ensure that such institutions will not face high [default rates] next year and lose access to federal student aid,” McMahon stated.
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Colleges were also forewarned by the Trump administration that the Education Department will soon start disclosing loan non-payment statistics by university.
“The Department is committed to overseeing the federal student loan programs with fairness and integrity for students, institutions, and taxpayers,” McMahon stated. “To that end, the department believes that greater transparency is needed regarding institutional success in counseling borrowers and helping them get into good standing on their loans.”
Later this month, she said, the data will be released to the public.
