Education Department Restarting Loan Collections for First Time Since 2020
The Education Department has announced that it is restarting student loan collections on borrowers in default for the first time since March 2020, plunging millions of Americans into further financial uncertainty even as the Trump administration is supposedly seeking to dismantle the agency entirely.
In a press release on Monday, the department said that it will start involuntary collection again on May 5 on defaulted loans, meaning that it will withhold government payments like tax refunds and other benefits from borrowers in default.
Officials will begin garnishing wages on those in default later this summer, the department said — in other words, forcibly taking wages away from the borrowers who are struggling the most.
There are over 5 million borrowers in default, the administration says, while there are also 4 million borrowers who are in “late-stage delinquency” on the cusp of default. The agency said that these borrowers will also be pushed into a default status — which is when borrowers haven’t made payments in nine months — if they don’t begin repayment.
“As a result, there could be almost 10 million borrowers in default in a few months,” the agency said. “When this happens, almost 25 percent of the federal student loan portfolio will be in default.”
Advocates for student loan holders have condemned the administration, saying that it will only worsen economic distress just as the Trump administration is pushing the U.S. toward a recession that could be disastrous for American families — and at a time when wealth inequality is the worst it’s been in recent history. Administration officials have been pushing a message of supposed personal financial responsibility, seemingly seeking to shift the blame onto individuals for issues caused by economic turmoil and accumulation of wealth for the richest Americans.
“The Trump administration’s efforts to collect on defaulted student debt is not something they are required to do by law — they have simply decided to use student loan debt as a weapon against the most financially vulnerable,” said Braxton Brewington, spokesperson for the Debt Collective, in a statement to Truthout.
“If Trump wanted an economy to work for everyone, he would cancel student debt, which would boost the economy,” Brewington went on. “Instead, he’s seeking a policy of punishment through a Department of Education that clearly isn’t shut down when it comes to operating as a predatory bank.”
Meanwhile, the announcement is a show of force from a department that the Trump administration is seeking to eliminate entirely — or at least, it seems, the parts of the agency that serve students and families.
“For five million people in default, federal law gives borrowers a way out of default and the right to make loan payments they can afford. Since February, Donald Trump and [Education Secretary] Linda McMahon have blocked these borrowers’ path out of default and are now feeding them into the maw of the government debt collection machine,” said Student Borrower Protection Center Executive Director Mike Pierce in a statement.
“This is cruel, unnecessary, and will further fan the flames of economic chaos for working families across this country,” Pierce went on.
Pierce is referring to the Trump administration taking down the application for income-driven repayment plans earlier this year, a program that allows borrowers to have debt forgiven if they make payments adjusted to their income over the course of at least 20 years. President Joe Biden had attempted to revive the flawed program to ensure that more borrowers could qualify for forgiveness.
The department recently reopened the applications, but apparently revised the program, saying that the Biden administration’s changes were “illegal.” Under the iteration of the program prior to Biden, only a few dozen people had ever had their debt forgiven through income-driven repayment.