If you owe student loans to the Department of Education, the agency wants its coins, quick! On Monday (April 21), officials confirmed the department will begin collecting payments on student loans that are in default as soon as next month. That process will include garnishing wages for potentially millions of Americans, per the Associated Press.
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More Details On Student Loan Collections
Under President Joe Biden, the Education Department tried multiple times to give broad forgiveness of student loans. However, courts halted his attempts! Meanwhile, Trump’s Education Secretary, Linda McMahon, says the process will be a relief to taxpayers.
“American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies,” McMahon said.
The hammer is coming down starting May 5! On that day and thereafter, the Department of Education will begin involuntary collection through the Treasury Department’s offset program. That program withholds government payments, including tax refunds, federal salaries, and other benefits, from people with past-due debts to the government. After a 30-day notice, the department will also begin garnishing wages for borrowers in default.
Borrowers who don’t make payments for nine months go into default. If in default, credit scores can be impacted as the debt sits in collections.
What To Know About The Loans Issue
Currently, roughly 5.3 million borrowers are in default on their federal student loans. The Trump administration’s announcement marks an end to a period of leniency that began during the COVID-19 pandemic. No federal student loans, including those in default, have been referred for collection since March 2020.
Despite the shocking update, many borrowers have been bracing for this moment. In 2020, President Donald Trump temporarily paused federal student loan payments and interest accrual for student borrowers.
The Biden administration extended the payment pause multiple times through 2023, and a final grace period for loan repayments ended in October 2024. At the time, tens of millions of Americans had to start making payments again.
Biden oversaw the cancellation of student loans for more than 5 million borrowers. Despite the Supreme Court’s rejection of his signature proposal for broad relief, he waived more than $183.6 billion in student loans through expanded forgiveness programs.
In her statement Monday, Education Secretary Linda McMahon said Biden had gone too far.
“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,” she said.
What About Repayment Options?
Questions are also swirling about certain income-driven repayment programs. In February, a court ruling blocked some of the payment plans. Borrowers in the more lenient SAVE Plan from the Biden era ended up in forbearance. In that state, borrowers receive relief from payments, but the student loans still accrue interest.
In February, the Department of Education took down applications for income-driven repayment programs only to bring them back online a month later. Those plans tie a monthly loan payment to a person’s income level.
There is some leeway for borrowers in default. One step to avoid wage garnishment is to get into loan rehabilitation, Betsy Mayotte recommends. Mayotte is the president of The Institute for Student Loan Advisors. To get loan rehab, borrowers must ask their loan servicer to be placed into such a program. Typically, servicers ask for proof of income and expenses to calculate a payment amount. According to Mayotte, once a borrower has paid on time for nine months in a row, they are taken out of default. But a loan rehabilitation can only be done once.
In addition to borrowers in default, around four million are 91 to 180 days late on their loan payments. According to department officials, less than 40% of all borrowers are current on their student loans. Meanwhile, some experts in the field have pointed to layoffs at the Federal Student Aid office at the Education Department as another obstacle for borrowers.
Associated Press writers Annie Ma and Adriana Morga contributed to this report.
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