Education Department to Resume Collections on Defaulted Student Loans
Washington — After a prolonged pause due to the pandemic, the Education Department is set to restart collections for student loans that are in default. This will include wage garnishment procedures for millions of borrowers. The announcement was made on Monday, signaling a significant change in the administration’s approach to student debt management.
Involuntary Collections Begin Soon
Starting on May 5, payments for defaulted student loans will be collected through the Treasury Department’s offset program. This procedure allows for the recovery of overdue debts by withholding various federal payments, such as tax refunds, salaries, and Social Security benefits.
- More than 5 million borrowers are currently in default.
- An additional 4 million borrowers may soon be classified as defaulted.
- Approximately a quarter of the federal student loan portfolio could be in default.
- Less than 40% of borrowers are up to date on their payments.
In the coming weeks, individuals in default will receive emails detailing the steps they need to take to address their loan status and explore repayment options, with wage garnishment notices expected to be dispatched later this summer.
Background on Loan Forgiveness Efforts
Since March 2020, there have been no federal student loans referred to collections. This hiatus was put in place when President Trump initiated a suspension of payments and interest accrual to combat the financial fallout of COVID-19. The pause was extended by the Biden administration until October 2024.
Although former President Biden aimed to eliminate a significant portion of student loan debt for millions, his proposal faced legal challenges and was ultimately rejected by the courts, including a Supreme Court ruling in 2023. Nevertheless, over 5 million borrowers benefited from other debt forgiveness programs under his administration.
Official Statements on the Future
Education Secretary Linda McMahon stated, “The Biden administration misled borrowers about its authority to waive debt.” She emphasized the Administration’s intention to manage the student loan program with transparency and legality, saying, “Going forward, the Department of Education, in conjunction with the Department of Treasury, will shepherd the student loan program responsibly and according to the law.”
Additionally, the department confirmed, “There will not be any mass loan forgiveness.” This indicates a shift in strategy towards encouraging borrowers to resume their repayments—considered crucial for both individual financial stability and the broader economic outlook.
