The U.S. Department of Education announced that collections on defaulted federal student loans will resume on May 5th, following a hiatus since March 2020. This decision aims to relieve taxpayers from the burden of unpaid federal student loans, which borrowers had initially agreed to fund their education. The resumption of collections will include a communication campaign to guide borrowers on repayment or exiting default.
Congress had initially instructed borrowers to begin repaying student loans in October 2023. However, the Biden-Harris Administration maintained a pause on collections, leaving many borrowers in uncertainty. Criticisms arose when efforts to manage income-driven repayment applications were unprocessed, and previous "on-ramps" and loan forgiveness plans faced scrutiny.
Linda McMahon, U.S. Secretary of Education, stated, "American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies." She emphasized that managing the student loan program responsibly involves aiding borrowers in resuming payments to benefit both their financial health and the national economy.
Currently, 42.7 million borrowers owe over $1.6 trillion in student loans. More than 5 million borrowers are in default, having not made payments in over a year, while 4 million are in late-stage delinquency. The likelihood of nearly 10 million borrowers defaulting soon presents a challenge, as almost a quarter of the federal student loan portfolio might end up in default.
Only 38% of borrowers are up-to-date with payments. Many borrowers find themselves delinquent, in forbearance, or deferment. Processing delays in repayment applications have left around 1.9 million borrowers unable to start repayment plans. The Department plans to address these issues soon with federal student loan servicers.
The Treasury Offset Program, managed by the U.S. Department of Treasury, will restart on May 5. Borrowers in default will receive emails from FSA prompting them to connect with the Default Resolution Group for payment arrangements or rehabilitation. Notices regarding administrative wage garnishment will be issued later this summer.
Guaranty agencies can also resume collection activities under the Federal Family Education Loan Program, but only after borrowers receive proper notice. FSA's communication campaign over the next two months will inform borrowers about payment options, aiming to support them in selecting suitable plans through tools like the Loan Simulator and AI Assistant. Enhanced Income-Driven Repayment processes will streamline enrollment without requiring annual income recertification.
FSA seeks collaboration with stakeholders and partners to promote a message of repayment responsibility among borrowers. Information for borrowers to address default is available on StudentAid.gov/end-default.
###
