The federal government will resume collecting default student loan payments from millions of people on Monday for the first time since the start of the pandemic, officials said.
The Trump administration said it would collect debt through the Treasury Department program, which withholds payments through tax refunds, wages and government benefits.
The US education sector has not been collected on default loans since March 2020. Of the nearly 43 million people owing the money, more than a third said they made regular payments.
Over the past five years, student debt has grown to $1.6 trillion, officials said. Education Secretary Linda McMahon said taxpayers will be saved from being in charge of the costs.
“U.S. taxpayers will no longer be forced to act as collateral for their irresponsible student loan policies,” McMahon announced in an April 21 news release that the collection will resume.
The move comes at a time when long-standing legal impasses over loan forgiveness and advocates say student borrowers are thinning out of inflation and raising concerns about the cost of living.
“We’re in the worst student loan situation we’ve ever had,” said Sabrina Carathans, executive director of the Student Debt Crisis Center, a nonprofit advocating for student debt cancellation.
“The plans and proposals announced by the Trump administration will hurt millions of individuals and families,” Karazan added. “It will create a financial catastrophe where people can’t meet their basic needs.”
What’s going to happen now?
All default borrowers should have received an email from the Federal Student Aid office warning of changes.
Officials said emails are asking borrowers to contact the default resolution group to register for monthly payments, income-based repayment plans, or sign up for loan rehabilitation. This is the process that allows borrowers to clear their default status when they make a series of payments during a specific time frame, depending on the type of loan.
According to the instructions outlined on the Default Solutions Group website, borrowers who had not changed their marriage status status or income had to send their latest federal 1040 tax returns to the education department in order to schedule monthly payments.
The Education Department said that by withholding payments through benefits such as tax rebates, payroll and Social Security payments, it will use the Treasury Department’s offset program to collect debt.
Under the program, the government can withhold the entire federal tax refund and up to 15% of the disposable wages of federal workers. The government said the FSA will send a notice regarding wage decorations later this summer.
In an April opinion article published in the Wall Street Journal, McMahon said borrowers who don’t pay on time will have a reduced credit score and “in some cases wages will be automatically earned.”
What happened to the forgiveness of the loan?
Before leaving the White House in January, then-President Joe Biden announced that his administration had cancelled student debts with over 5 million people.
“Since the first day of my administration, I have committed to ensuring that higher education is not a barrier to opportunity, but a ticket to the middle class, and I am proud to have allowed more student loan debt in history than any other administration,” Biden said in a statement at the time.
However, in an April news release, Trump’s education division revealed that there will be no “forgiveness of large-scale loans” in the future.
McMahon accused the Biden administration of transferring hundreds of billions of dollars in debt to taxpayers, leaving borrowers within “confusing scope” of payments.
“The administrative agencies do not have the constitutional authority to wipe out debts and the loan balance simply does not disappear,” she said.
Trump suspended collections on most federal student loans in March 2020, and Biden continued to suspend collections when he took office in 2021.
Biden had proposed that eligible borrowers would be able to cancel debts of up to $20,000 until the U.S. Supreme Court ruled on the student loan debt relief plan in 2023. The plan cost more than $400 billion, with around 43 million Americans eligible to participate.
In the Wall Street Journal Op-Ed, McMahon said Biden “had no authority to fully allow student loans.”
She said reopening the collection was a fair act, not an unfriendly act for the student borrower.
“It’s not a casualty crime to borrow money and not pay it off. The debt won’t go away. It’s transferred to someone else,” she said. “If borrowers don’t pay the government the debt, taxpayers will.”
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