Student Loan Repayments After Default Set to Resume: Key Information
The Department of Education announced collections on defaulted student loans will resume on Monday, May 5.
Payments had been paused since March 2020 due to the COVID-19 pandemic. The new Trump Administration does not plan to offer any exemptions, and anticipates that approximately 10 million borrowers, or 1 in 4, could be in default within the coming months.
This action reverses the Biden Administration’s efforts to forgive student loan debt, which were repeatedly blocked by the courts, including challenges to the income-driven repayment plan that allowed some low-income borrowers to make $0 monthly payments.
White House Press Secretary Karoline Leavitt stated on Tuesday that the federal government’s student loan portfolio is around $1.6 trillion, with 40% of borrowers currently in repayment. “America is $36 trillion in debt. We must get our fiscal house in order and restore common sense to our country. If you take out a loan, you have to pay it back,” she said.
Under the new Administration, both the Education Department and the Department of Treasury will oversee student loans. Here’s what borrowers need to know.
What happens next?
Borrowers have faced uncertainty due to legal challenges that have paused the SAVE plan, a popular repayment program promoted as the “most affordable” option. Those enrolled in SAVE may need to switch to another repayment program and should apply for alternatives if they haven’t already. The Department of Education expects to begin processing applications for these alternative plans within the next month.
Borrowers with defaulted loans should anticipate an email within the next two weeks, directing them to contact the Debt Resolution Group for help resolving related disputes.
As the Trump Administration will not pursue student loan forgiveness, borrowers should not delay in seeking solutions.
What happens if I don’t pay my student loans?
The Administration has made it clear that failure to repay student loans could result in wage garnishment, Social Security offsets, or the seizure of tax refunds.
The Department of Education stated that the Office of Federal Student Aid (FSA) will begin sending notices to initiate wage garnishment later this summer.
Failure to make payments will also negatively affect borrowers’ credit scores.
U.S. Secretary of Education Linda McMahon stated in a press release, “American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies. Going forward, the Department of Education, in conjunction with the Department of Treasury, will shepherd the student loan program responsibly and according to the law, which means helping borrowers return to repayment—both for the sake of their own financial health and our nation’s economic outlook.”
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