After a five-year pause, the Trump administration is restarting collections on defaulted student loan debt. Some 9 million borrowers could face severe financial consequences as a result in the next few months, including garnishing federal tax refunds, Social Security benefits, federal pensions, and wages.
The Department of Education will resume collections on defaulted student loans starting May 5, it announced this week. The department has not collected on defaulted loans since March 2020, when a host of changes were made to loan collection and billing to help borrowers during the Covid-19 pandemic.
"Resuming collections protects taxpayers from shouldering the cost of federal student loans that borrowers willingly undertook to finance their postsecondary education," the Department said in its announcement. "There will not be any mass loan forgiveness."
More than 5 million borrowers have not made a monthly payment in over 360 days and are currently in default, according to the Education Department (ED), while 4 million borrowers are in late-stage delinquency and on their way to being in default. That is almost 25% of all federal student loans, according to ED.
Federal student loan borrowers have faced a chaotic five years of policy changes, inaccurate payment information, and unfulfilled promises of loan forgiveness. Now, many are seeing their payments spike and their credit scores crater. Gone are the days of the Biden administration's more lenient stance toward federal student loans; the Trump administration has made clear that borrowers will not see the relief many have hoped for.
When a credit sends defaulted debt to collections, it can wreak havoc on a borrower's finances. Already, recent research from the U.S. Federal Reserve finds that more than 9 million borrowers "will face significant drops in credit score once delinquencies appear on credit reports in the first half of 2025." By the summer, some borrowers could see automatic deductions from their paychecks on defaulted debt, the Education Department says.
That is likely to put even more strain on an already unstable economy, financial experts say, particularly as prices rise and the strength of the job market is uncertain.
What borrowers need to know
The Education Department will refer borrowers whose loans are in default to the Treasury Offset Program, a U.S. Treasury-administered collection service, starting May 5.
That gives borrowers around two weeks to contact the Education Department's Default Resolution Group to learn about their options, whether that's making a payment, enrolling in an income-driven repayment plan, or signing up for loan rehabilitation. Those who still cannot repay their loans may then face involuntary collections, with White House press secretary Karoline Leavitt telling reporters that can include "withholding money from borrowers, tax refunds, federal pensions and even their wages."
The department says it will begin an aggressive messaging campaign to make borrowers aware of their obligations and repayment options. It will also send emails to all borrowers in default to make them aware of their status.
"Student and parent borrowers—not taxpayers—must repay their student loans," the department said.
The announcement comes at a time when experts say the federal student loan program is in disarray.
The Trump administration is in the process of unwinding many of the changes the Biden administration put in place to help borrowers. That includes challenging the legality of a Biden-era income-driven repayment plan that around millions are enrolled in, and slashing staff at offices that oversee student loans. Education Secretary Linda McMahon has been tasked with dismantling the Education Department, which oversees the $1.6 trillion federal loan portfolio.
This story was originally featured on Fortune.com
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