Collection of defaulted student loans to restart May 5

WASHINGTON – Since the pandemic, federal student loan borrowers have been mostly protected from the harshest consequences of not paying back their loans.

That's about to change, and quickly.

Linda McMahon, the secretary of the U.S. Department of Education, said the federal government will resume involuntary collections for borrowers in default on May 5.

In two weeks, loan holders will start the process of taking money from the paychecks of borrowers who've missed their payments for 270 days or more. They'll also start moving to collect from other federal payments, including tax refunds and Social Security benefits.

The change, which McMahon unveiled on April 21 and has been expected for months, represents the last major cog in the wheel of the U.S. student loan repayment system to start spinning again since the coronavirus pandemic.

Collections for defaulted borrowers – of which there are more than five million – have been paused since March 2020. Under former President Joe Biden, monthly student loan bills resumed in the fall of 2023 after a years-long break.

But collecting on loans, the harshest penalty for borrowers, still hadn't restarted by the time President Donald Trump took office a second time. During the Biden administration, the Education Department pushed off recommencing involuntary collections until after the 2024 presidential election.

As court battles wage over the future of major repayment programs, much of the federal student loan system remains at a standstill. Just over a third of borrowers (38%) are in repayment and current on their student loans, according to the Education Department. More than 40 million Americans still owe payments on their federal student loans.

Roughly two million borrowers are in interest-free forbearance – meaning they don't have to pay back their loans indefinitely – while the courts decide the legality of the Saving on a Valuable Education, or SAVE, plan. The Biden administration called the program, which bases monthly bills on borrowers' incomes, the "most affordable repayment plan ever."

All borrowers in default will be notified of their status by email over the next two weeks, Education Department officials said. The agency will urge borrowers in those emails to either pay their bills, enroll in an income-driven repayment plan, or sign up for loan rehabilitation or consolidation. (Source: USA Today)