Education Department resumes collecting loans for borrowers in default
The U.S. Education Department has resumed its collection of defaulted student loans, impacting approximately 5 million borrowers who have not made payments for over 270 days. This pause on collections had been in effect since 2020. The Biden governance previously attempted to introduce a debt elimination plan called “Saving on a Valuable Education,” but it was rejected by a federal appeals court. As an inevitable result, the Education Department now anticipates that the number of borrowers in default could rise to 10 million in the near future. The administration plans to revive the Treasury Offset Program to recover debts through garnished tax returns and Social Security benefits, as well as wage garnishment for non-federal employees. Borrowers in default can pursue loan rehabilitation or consolidation to manage their repayments; however, loan rehabilitation is only available once and requires nine payments over ten months to remove the default status from their credit report.
Education Department resumes collecting loans for 5 million borrowers in default
The Education Department resumed its collection of defaulted student loans on Monday.
Since 2020, collections on student loans have been paused. Currently, 5 million borrowers are in default, which is when a borrower hasn’t paid on his or her loan in over 270 days.
The Biden administration’s efforts to create debt elimination through the Saving on a Valuable Education plan were struck down by a federal appeals court last summer. The plan offered borrowers payment reductions, with an estimated cost of $475 billion over a 10-year period for taxpayers.
“American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies,” Education Secretary Linda McMahon said in a statement.
The Education Department projects that the number of borrowers in default could reach 10 million in the coming months.
In an effort to collect loan repayments, the Trump administration will restart its Treasury Offset Program, which will collect debts by garnishing tax returns or Social Security benefits. An employer may withhold portions of borrowers’ wages and benefits to repay loan holders.
The administration is also going to garnish the wages of default loan borrowers by ordering nonfederal employees to withhold a portion of their income to make repayments.
Student loan borrowers in default have two options to manage their loan repayments: student loan rehabilitation and student loan consolidation.
WHAT WOULD HAPPEN TO KEY EDUCATION DEPARTMENT PROGRAMS IF TRUMP SHUTS THEM DOWN
Defaulted borrowers only have the option to pursue loan rehabilitation once. The process requires them to make nine loan repayments over 10 months. The amount they must pay is based on their income and will typically equal 10% or 15% of their annual discretionary income. After the nine payments are completed, the borrower will no longer be in default, and the default notice will be removed from his or her credit report.
Another option student loan borrowers have is to seek student loan consolidation, in which all their loans are consolidated into one single monthly payment. Through this route, borrowers may have to pay more, but they have the option to switch to a different student loan servicer.
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