Millions of Americans are about to face a tough reality. Starting May 5, 5 million borrowers with defaulted student loans will have their debts sent to collections.
This marks the first time since the COVID-19 pandemic began that the Education Department will resume collecting these loans, which have been paused since 2020. Borrowers who haven’t made payments for over 270 days – known as default – will now feel the full weight of the government’s efforts to recover the debts.
The Department of Education’s decision to send loans into collections is a significant step, as it will affect millions who’ve fallen behind on their payments before the pandemic. For many borrowers, the financial strain has already been tough, and the recent layoffs of Federal Student Aid employees under President Trump’s administration have made things worse. As James Kvaal, former Under Secretary of Education, points out, fewer staff means fewer resources for borrowers who are trying to find affordable repayment plans or qualify for loan forgiveness.
Kvaal has also stressed how defaulting on a student loan can have severe consequences. Defaulted loans can damage your credit score, and states might even revoke your driver’s license. The collection process itself could involve wage garnishments, which means your employer would have to withhold part of your earnings to cover your loan, or your tax refunds could be seized. This could also extend to federal benefits like Social Security.
However, the Department of Education insists that this is necessary to protect taxpayers, who should not be responsible for student loans that were “willingly” taken on by borrowers. Secretary Linda McMahon has emphasized that the government must move forward with collections to ensure the financial health of the nation. Her message also highlights that this is an effort to avoid the “irresponsible” policies of previous administrations.
While the Education Department’s move to start collections on defaulted loans is firm, it’s not without a public relations effort. They’ve promised a comprehensive outreach campaign to help borrowers navigate repayment plans and provide guidance on getting out of default. But critics, like Mike Pierce from the Student Borrower Protection Center, argue that this collection process is unnecessary and will only make things worse for borrowers already struggling.
The backdrop of this student loan shift also includes the Department of Education’s plans to rehome the entire $1.6 trillion student loan portfolio. President Trump’s administration has proposed moving the entire student loan system to the Small Business Administration (SBA), a move that could disrupt things further. Former Obama and Biden administration official James Kvaal warns that this shift in responsibility, combined with massive staff cuts at the Department of Education, is risky. “For millions of borrowers already late on their payments, this disruption could push them into deeper default,” Kvaal said.
It’s clear that the landscape for student loan borrowers is about to get a lot more complicated. With collections kicking off soon, borrowers need to be aware of the steps they can take to avoid wage garnishments or other penalties. While the government says it’s doing what’s necessary, many people feel that this could lead to more harm than help.
If you’re one of the millions facing collections, now is the time to figure out your next steps. Don’t wait until May 5 to act – check out available repayment plans or see if you qualify for loan forgiveness. Visit Student Aid for more information, and if you’re unsure about what’s best for your situation, consider speaking to a financial advisor to avoid long -term damage to your financial health.
Don’t wait until May 5 – if you’re behind on student loan payments, now’s the time to act!
