Federal Education Authority to Repossess Delinquent Student Loans
Student loan collections for borrowers in default kick off once more on May 5, 2025, after a lengthy five-year hiatus due to the COVID-19 pandemic. The Department of Education made the announcement, effectively putting an end to the pandemic-era pause.
According to the Department, over 5 million borrowers are currently in default, a status that arises after 270 days without a payment.
Education Secretary Linda McMahon stated, "Taxpayers will no longer shoulder the burden of irresponsible loan policies." She clarified that the Biden administration does not have the constitutional authority to waive debt or make it disappear.
In line with the announcement, the Education Department's Office of Student Aid is reviving the Treasury Offset Program. This program collects debts by garnishing federal and state payments like tax refunds or Social Security benefits. Borrowers in default are encouraged to contact the Student Aid office's Default Resolution Group and consider making monthly payments, enrolling in income-driven repayment plans, or signing up for loan rehabilitation.
The department also intends to initiate administrative wage garnishment this summer. This process allows a federal agency to instruct a non-federal employer to deduct a percentage of an employee's income to cover a delinquent debt.
The Trump administration is currently in the process of dismantling the Education Department, with President Trump directing McMahon to initiate the shutdown last month. The Small Business Administration is slated to absorb the Education Department's massive student loan portfolio, valued at a mind-boggling $1.8 trillion in debt.
Meanwhile, borrowers face limited access to affordable repayment programs as the Education Department has removed applications for income-driven repayment plans from its website. With the removal of the Biden administration's SAVE plan due to a recent court order, borrowers unable to pay the standard rate have few options left.
However, the Education Department plans to unveil a new "enhanced" income-driven repayment process next week, which is expected to eliminate the need for borrowers to recertify their income annually.
The SAVE plan, introduced in 2023 and mired in legal battles, allowed borrowers to cap their monthly student loan bills at 5% of their income instead of 10%. Borrowers were also promised loan forgiveness after making just 10 years of payments.
Mike Pierce, Executive Director of the Student Borrower Protection Center, criticized the Trump administration for pushing ahead with involuntary collections for defaulters in the absence of viable income-driven repayment plans. He stated, "Five million borrowers, who have the right to make affordable loan payments, are being steered into the government debt collection machine instead."
- The Trump administration has directed Education Secretary Linda McMahon to initiate the dismantling of the Education Department, with the Small Business Administration set to absorb the Education Department's massive student loan portfolio valued at $1.8 trillion in 2023.
- The SAVE plan, introduced in 2023, offered borrowers the option to cap their monthly student loan bills at 5% of their income instead of 10%, and promised loan forgiveness after making just 10 years of payments.
- With the removal of applications for income-driven repayment plans from the Education Department's website, borrowers unable to pay the standard rate have limited access to affordable repayment programs.
- Borrowers in default who fail to contact the Student Aid office's Default Resolution Group and make necessary arrangements may face administrative wage garnishment this summer, and their federal and state payments may be garnished through the revived Treasury Offset Program starting on May 5, 2025.
