The U.S. Department of Education is set to resume the collection of defaulted student loans starting next month, including the potential garnishment of wages for millions of borrowers, as announced by officials on Monday. Currently, approximately 5.3 million borrowers are in default on their federal student loans, marking a significant shift in policy following a lengthy period of forbearance initiated during the COVID-19 pandemic.
This announcement signifies the conclusion of the leniency period that began in March 2020, during which no federal student loans were referred for collections, including those already in default. Under the previous administration, borrowers were granted a reprieve from payments and interest accrual. However, under President Joe Biden, the Education Department has made various attempts to implement student loan forgiveness programs, although many of these efforts have faced legal challenges.
Beginning on May 5, the Education Department will initiate involuntary collections through the Treasury Department’s offset program. This program allows the government to withhold payments, including tax refunds, federal salaries, and other benefits, from individuals with overdue debts. After a 30-day notice period, the department will also commence the garnishment of wages for those borrowers who remain in default.
The decision to resume collections has garnered criticism from various advocacy groups. Mike Pierce, the executive director of the Student Borrower Protection Center, condemned the actions as "cruel" and "unnecessary," arguing that it could exacerbate economic hardships for working families across the nation. Many borrowers are already preparing for their financial obligations to resume following the extended payment pause.
In 2020, former President Donald Trump implemented a temporary pause on federal student loan payments and interest rates to provide relief to borrowers. This pause was subsequently extended multiple times by the Biden administration and concluded in October 2024. Consequently, tens of millions of Americans are now required to start making payments again, with borrowers who miss payments for nine months being classified as in default, impacting their credit scores and risking collections.
In addition to the 5.3 million borrowers currently in default, there are an estimated 4 million more who are between 91 to 180 days late on their payments. Alarmingly, less than 40% of all borrowers are current on their student loans, according to department officials. For those in default, one viable option to avoid wage garnishment is to enroll in a loan rehabilitation program. Betsy Mayotte, president of The Institute for Student Loan Advisors, advises borrowers to contact their loan servicer to initiate this process, which typically involves providing proof of income and expenses to determine a manageable payment amount.
Despite the Supreme Court's rejection of President Biden's broader student loan forgiveness proposal, his administration has overseen the cancellation of student loans for over 5 million borrowers. Through various expanded forgiveness programs, over $183.6 billion in student loans has been waived. In her statement on Monday, Education Secretary Linda McMahon remarked that Biden's approach had exceeded appropriate boundaries. She emphasized that moving forward, the Department of Education, in collaboration with the Department of Treasury, will ensure the student loan program is managed responsibly, facilitating borrowers' return to repayment for their financial well-being and the economic stability of the nation.
For more information about managing your student loans or exploring loan rehabilitation options, borrowers are encouraged to reach out to their loan servicers or seek guidance from financial advisors.
