Department of Education resumes collections on defaulted student loans

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The U.S. Department of Education will restart involuntary collections (wage garnishment, seized tax refunds, etc.) on defaulted federal student loans as of May 5, ending the pandemic-era freeze. Nearly 10 million borrowers could be affected.

Since payments resumed in October 2023, only 59 percent of borrowers (13M out of 22M) have paid, while 40 percent are delinquent or in default. Currently, 5M+ borrowers are in default, with another 4M severely delinquent, risking a 25 percent default rate soon.

While maintaining pauses on collections until now, the administration has faced criticism for contributing to confusion and rising defaults. Meanwhile, it has expanded relief programs (e.g., $1.2B in automatic discharges) but emphasized no mass forgiveness – only structured repayment options.

The government will resume Treasury offsets, issue warnings and begin wage garnishments for non-responsive borrowers. Concurrently, it is rolling out simplified repayment plans, AI tools and expanded call centers to assist struggling borrowers.

Experts like Alex Beene advise borrowers to act now: enroll in income-driven plans or negotiate repayment to avoid garnishment. The shift signals tougher enforcement, stressing "no more delays" for overdue loans.

The U.S. Department of Education has announced that the Office of Federal Student Aid (FSA) will restart collections on defaulted federal student loans beginning Monday, May 5, ending a pandemic-era freeze on involuntary repayments and potentially impacting nearly 10 million borrowers.

Confirmed by Education Secretary Linda McMahon on April 21, the move reinstates measures allowing the government to collect overdue debt through garnished wages, seized tax refunds and intercepted Social Security payments via the Treasury Offset Program. These enforcement tools had been paused since March 2020 but will now return under pre-pandemic policies set during the Trump administration.

According to the current data of the federal student loan system, 42.7 million borrowers owe a combined $1.6 trillion in student debt and over 5 million borrowers are in default (360+ days delinquent), with 4 million more in late-stage delinquency (91-180 days overdue). If trends continue, nearly 25 percent of all federal loans could be in default within months.

Only 38 percent of borrowers are current on their payments, while most others are in deferment, forbearance or delinquency. Meanwhile, 1.9 million borrowers remain stuck in a processing backlog, unable to enroll in income-driven repayment (IDR) plans due to administrative delays.

Additionally, despite 22 million borrowers being due for repayment in October 2023, only 13 million (59 percent) have made payments, while 40 percent have fallen into delinquency or default.

The Biden administration kept collections frozen since March 2020 despite Congress mandating repayment restart in October 2023, contributing to confusion, rising default rates and taxpayer strain. The previous administration prioritized temporary relief, such as the halted (and legally challenged) student debt cancellation plan, over long-term fiscal responsibility. (Related: Biden admin to WIPE OUT $1.2B in federal student loans under new plan – essentially vote-buying using taxpayer money.)

As a response, the FSA will resume the Treasury Offset Program, allowing the government to seize tax refunds and other federal payments from defaulted borrowers; issue warnings via email and mail, urging borrowers to contact the Default Resolution Group or enroll in loan rehabilitation or IDR plans; and begin wage garnishment later this summer for those who fail to respond.

Simultaneously, the department pledges to expand borrower support, including a simplified IDR application eliminating annual recertification, increased call center availability and AI-powered tools (like Aiden) to guide borrowers and a public awareness campaign stressing no mass forgiveness, only repayment or structured relief.

Trump admin shields taxpayers from shouldering unpaid federal loans

The move aims to protect taxpayers from shouldering the burden of unpaid federal loans. "American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies. 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," said McMahon.

"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 the law, which means helping borrowers return to repayment – both for the sake of their own financial health and our nation’s economic outlook."

In response to the announcement, Alex Beene, a financial literacy instructor at the University of Tennessee at Martin, urged student loan borrowers to take immediate action.

"For many student loan borrowers, the past few years provided a plethora of forgiveness and payment plans to ease the repayment process. However, with a new administration comes new policy... the crackdown on repayments is about to begin," Beene said.

"You need to start making plans immediately to begin making payments or you'll risk having your wages garnished later this year. It may not be the desired outcome for many, but it's the new reality for millions of borrowers."

Visit DebtCollapse.com for more stories about student loans.

Watch this clip from One America News covering President Joe Biden's latest announcement of more student loan forgiveness measures.

This video is from the NewsClips channel on Brighteon.com.