Beginning next month, the federal government intends to begin collecting on student loans that have fallen into default for the first time in nearly five years.
On Monday, the U.S. Department of Education declared that starting on May 5th, borrowers who are currently in default will have to start making loan payments again through its Office of Federal Student Aid. Since the beginning of the COVID-19 outbreak in March 2020, the department has not collected on loans that have fallen into default.
The Trump administration claims that over 5 million borrowers have not made a monthly payment in over 360 days, and 42.7 million borrowers owe over $1.6 trillion in student debt.
“Only 38% of borrowers are in repayment and current on their student loans,” according to the department. “Most of the remaining borrowers are either delinquent on their payments, in an interest-free forbearance or in an interest-free deferment.”
“American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies,” Education Secretary Linda McMahon stated.
“The Biden administration misled borrowers: the executive branch does not have the constitutional authority to wipe debt away, nor do the loan balances simply disappear,” McMahon continued. “Hundreds of billions have already been transferred to taxpayers.”
“Going forward, the Department of Education, in conjunction with the Department of Treasury, will shepherd the student loan program responsibly and according to law, which means helping borrowers return repayment — both for the sake of their own financial health and our nation’s economic outlook.”
The Trump administration terminated online applications for the Income Driven Repayment plan earlier this year. This plan enables borrowers to pay back their student loans according to their income. Last month, those online applications were reopened.
The Education Department described the “illegal loan forgiveness schemes” as a means to “win points with borrowers and mask rising delinquency and default rates.”
In October 2023, Congress ordered student and parent borrowers to start repaying their student loans after the Biden administration failed to lift the collections pause and process applications for income-driven repayment.
FSA will write debtors in default about restarting monthly payments and loan rehabilitation information for individuals who require further support before repayment starts in two weeks. Notices for administrative wage garnishment will be sent by FSA later this summer.
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The department stated that “FSA will conduct a robust communications campaign to engage all borrowers on the importance of repayment.” Beginning next week, information will also be made available on the StudentAid.gov website.
The administration’s plan was criticised Monday by the Student Borrower Protection Centre, which referred to it as a “government collections machine.”
“For five million people in default, federal law gives borrowers a way out of default and the right to make loan payments they can afford,” SBPC Executive Director Mike Pierce stated.
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“Since February, Donald Trump and Linda McMahon have blocked these borrowers’ path out of default and are now feeding them into the jaw of the government debt collection machine,” Pierce continued. “This is cruel, unnecessary, and will further fan the flames of economic chaos for working families across this country.”
According to FSA, it would collaborate with states, schools, institutions, and financial aid managers in order to “restore commonsense and fairness with the message: student and parent borrowers — not taxpayers — must repay their student loans.”
“There will not be any mass loan forgiveness,” the Department of Education issued a warning on Monday.
