Trump Administration to Restart Collections on Defaulted Student Loans: What Borrowers Need to Know

The U.S. Department of Education plans to restart collecting defaulted student loans on May 5, after a five-year pause. This impacts over 42.7 million borrowers who collectively owe about $1.6 trillion. Alarmingly, more than 5 million borrowers have not made a payment in the past year, and an additional 4 million are close to default status.

U.S. Secretary of Education Linda McMahon emphasized that American taxpayers shouldn’t have to bear the burden of poor student loan policies any longer. She announced that the Department will be reaching out to those in default through emails, encouraging them to make payments or enroll in repayment plans. More information will be available on a government website.

Starting May 5, borrowers who do not respond will be referred to a collections program run by the Treasury Department. Many experts and advocacy groups have voiced concerns about this timing. Aissa Canchola Bañez, Policy Director for the Student Borrower Protection Center, pointed out that this comes during a period of economic uncertainty, worsening the situation for many borrowers.

Older borrowers are particularly affected. Nearly 40% of federal borrowers over 65 are in default on their student loans, according to a 2017 report by the Consumer Financial Protection Bureau. Many of these individuals are on fixed incomes, making repayment more challenging.

Falling behind on payments can also damage borrowers’ credit scores, complicating their ability to secure housing or other essential loans. The Department indicated it will start wage garnishments later this summer, automatically deducting payments from borrowers’ wages.

In this challenging landscape, borrowers may want to explore federal repayment options that could ease their financial burden. As the situation unfolds, it’s crucial for borrowers to stay informed and proactive about their loans.

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