U.S. Resumes Student Loan Collections: Millions Face Financial Ramifications

WASHINGTON, D.C. — The U.S. Department of Education is set to restart collections on student loans in default, beginning May 5. U.S. Secretary of Education Linda McMahon announced this decision, which impacts approximately 5.3 million borrowers who have not made payments since the COVID-19 pandemic pause took effect in March 2020.

The federal student loan collections process, described by McMahon as a necessary step to end ‘irresponsible student loan policies,’ allows the government to garnish wages, intercept tax refunds, and withhold federal benefits from those who owe past-due debts. This move follows the Biden administration’s attempt to implement widespread loan forgiveness, which was blocked by court rulings.

“American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies,” McMahon stated. “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.”

Currently, around 4 million more borrowers are categorized as “late-stage delinquent,” meaning they are over 90 days past due on payments. This marks a significant shift as the previous assistance policies rolled out during the pandemic are coming to an end.

The decision to resume collections received criticism from student advocacy groups. Mike Pierce, executive director of the Student Borrower Protection Center, called the policy “cruel” and stated it would exacerbate economic difficulties for struggling families.

According to department officials, less than 40% of all borrowers are currently making payments on their loans. The shift in collections comes as millions are adjusting to the resumption of payment obligations after multiple extensions were granted over the past three years.

Betsy Mayotte, president of The Institute for Student Loan Advisors, advised borrowers in default to pursue loan rehabilitation programs to avoid wage garnishment. “Typically, servicers ask for proof of income and expenses to calculate a payment amount. After nine months of consistent payments, borrowers can be removed from default status,” she said.

In response to financial pressures on borrowers, the Federal Student Aid office is extending its call-center operations and updating its loan simulator to help students find a manageable repayment plan. An advanced AI assistant named Aidan is also being implemented to assist borrowers in navigating repayment options.

As the Department of Education moves forward, McMahon emphasized the need for accountability from both borrowers and educational institutions. She highlighted the necessity for colleges and universities to be transparent about their financial dealings with students and to ensure that borrowed funds are used effectively.