Student-loan borrowers are likely to start feeling the harshest consequences of falling behind on their debt.
The Education Department said it’s resuming debt collection on defaulted federal student loans starting Monday, May 5. That means borrowers who are roughly a year behind on their payments could have their Social Security benefits and tax refunds offset as well as their wages garnished in the coming weeks and months.
The government estimates that about 5 million borrowers are in default and at risk of facing these consequences. These borrowers were likely in this status before the pandemic-era pause on student loan payments, interest and collections. Starting May 5, a subset of those borrowers will begin receiving notices from the Treasury Department indicating that their benefits will be offset in 30 days. Borrowers will receive notices warning of wage garnishment later this summer.
The Education Department has also said that roughly 4 million more borrowers are severely behind and at risk of defaulting on their loans later this year.
The Trump administration’s move comes after a five-year freeze on the most intense penalties for falling behind on student loans. Education Department officials said turning on the collection machine is necessary to maintain the health of the student-loan portfolio.
“Debt doesn’t go away; it gets transferred to others,” Secretary of Education Linda McMahon wrote in the Wall Street Journal last month. “If borrowers don’t pay their debts to the government, taxpayers do.”
But to consumer advocates and many borrowers, the decision adds another layer of confusion and fear to an already complicated time. Roughly 8 million borrowers are in a forced forbearance, unable to make progress toward repaying their loans because the legality of their repayment plan is being litigated. Meanwhile, borrowers have struggled to access some of the most affordable student loan repayment plans over the past several months. The government said it is beginning to process a backlog of 1.8 million income-driven repayment applications this week.
