The U.S. Department of Education plans to recommence student loan collections next month, affecting millions of borrowers who have fallen behind on their payments. As it stands now, over 5.3 million borrowers are in default on their federal student loans. Moreover, over 4 million more are 91 to 180 days past due. The collection process will begin on May 5th. This is a major change after an unprecedented moratorium on payments that began under the Trump administration in 2020.
Borrowers who default after failing to make payments for nine months face devastating costs. Otherwise, they risk ending up in default status, and that will hurt their credit scores. This black mark can result in additional financial consequences, including loans being entered into collections. Involuntary collection methods of last resort will entail wage garnishment. The Treasury Department’s offset program makes it possible for people with past-due debts to have government payments, like tax refunds and federal salaries, withheld.
The Biden administration has extended the pause in payments for student borrowers several times over 2023 so far. This measure began as a short-term relief effort. Still, the last grace period for loan repayments ended in October 2022, forcing collections to begin again.
Fewer than 40% of all borrowers are now in good standing on their student loans, department officials told us. This staggering statistic highlights the financial pressure most of these borrowers are under as they try to start their repayment journey.
Kristin McGuire, executive director for Young Invincibles, commented on the situation, stating, “Things are really difficult to understand right now. Things are changing every day.” She noted that no borrower wants to go into default. Rather, they find themselves unable to pay their bills because they’re being crushed by costs. She remarked, “We can’t assume that people are in default because they don’t want to pay their loans. People are in default because they can’t pay their loans and because they don’t know how to pay their loans.”
Education Secretary Linda McMahon made it clear that the administration was going to be tough on their first return to collection by stressing accountability. “American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies,” she stated.
The Department of Education is preparing to begin these collections. It’s imperative that our borrowers know their options and are able to go out and get the help that they’re going to need. These new changes would be some of the most significant cuts, representing a return to before-pandemic practices. They highlight the constant fight that millions of Americans have been battling, with student loan debt.