Education Department to Resume Collections on Defaulted Student Loans

WASHINGTON (AP) — The U.S. Department of Education announced Monday that it will resume collections on defaulted student loans starting May 5, marking the end of a hiatus that began in March 2020 due to the COVID-19 pandemic. Currently, approximately 5.3 million borrowers are in default on their federal student loans.

This change allows involuntary collections through the Treasury Department’s offset program, which can withhold government payments such as tax refunds and federal salaries from individuals with past-due debts. After a 30-day notice, the department plans to start garnishing wages of borrowers who remain in default.

Many borrowers have been preparing for this return to collections since the moratorium on payments commenced. In 2020, a pause was implemented for federal student loan payments and interest accrual to ease the financial burden on borrowers during the pandemic. This pause was extended multiple times through 2023, with the final grace period concluding in October 2024, compelling millions to resume their payments.

According to department officials, borrowers who fail to make payments for nine months default on their loans, impacting their credit scores and potentially leading to collections. In addition to the more than 5 million already in default, around 4 million borrowers are between 91 to 180 days late on their payments, indicating an ongoing issue within the student loan sector. Currently, less than 40% of all borrowers are up to date on their loans.

Education Secretary Linda McMahon stated that the resumption of collections is necessary to protect taxpayers from bearing the costs associated with federal student loans. “The executive branch does not have the constitutional authority to wipe debt away, nor do the loan balances simply disappear,” McMahon said in a statement.

The government has not collected on defaulted loans since the Trump administration suspended collections at the onset of the pandemic. As more borrowers transition into default status, it is estimated that nearly 25% of the federal student loan portfolio will be in default soon.

The U.S. student loan system currently affects around 42.7 million Americans, with total student loan debt exceeding $1.6 trillion.