The federal government is set to resume collecting defaulted student loans starting Monday, May 5, after a pause that lasted several years. The Department of Education's Office of Federal Student Aid will begin taking action against more than 5 million borrowers who have fallen behind on payments.
The pause on collections began in March 2020 as part of relief efforts related to the COVID-19 pandemic. The Trump administration announced the lifting of this pause, signaling a return to pre-pandemic collection practices.
Borrowers in default may face various consequences, including wage garnishment, tax refund seizures, and other collection actions through the U.S. Treasury Offset Program. These actions can significantly impact an individual's financial stability and credit scores. Involuntary collections, considered a severe consequence, often begin after about nine months of missed payments.
U.S. Secretary of Education Linda McMahon defended the decision, stating that taxpayers should not be required to serve as collateral for policies regarding student debt. The administration's perspective emphasizes accountability for those who have borrowed money.
Experts advise borrowers facing default to act quickly. Contacting your loan servicer is a primary step to understand the specific situation.
Options available to potentially avoid collection actions include loan consolidation or rehabilitation, processes that can help borrowers get loans back into good standing. While rehabilitation is a longer process, consolidation can also be an option.
Borrowers may also explore income-driven repayment (IDR) plans designed to make payments more manageable based on income and family size. Programs such as Pay As You Earn (PAYE) and the Income-Contingent Repayment (ICR) plan remain available, although the Saving on a Valuable Education (SAVE) plan is currently impacted by court actions.
The restart of collections follows the end of a separate "on ramp" period provided by the Biden administration, which shielded borrowers from certain consequences of missed payments until September 30, 2024. With that period closed, standard collection protocols are resuming.
Borrowers struggling with payments are encouraged to look into resources provided by organizations like the National Consumer Law Center (NCLC) or the Student Protection Borrower Center (SPBC) for information on consolidation and rehabilitation.
For one borrower in Riverside, California, facing repayment while unemployed, the situation presents a challenge. La Shanna Mason noted that while it's difficult now, options exist if borrowers provide income information. "I don't see anything wrong with it, if you owe something, pay it," Mason said.