Student loans in default to be referred to debt collection, Education
Department says
[April 22, 2025]
By ANNIE MA
WASHINGTON (AP) — The Education Department will begin collection next
month on student loans that are in default, including the garnishing of
wages for potentially millions of borrowers, officials said Monday.
Currently, roughly 5.3 million borrowers are in default on their federal
student loans.
The Trump administration ’s announcement marks an end to a period of
leniency that began during the COVID-19 pandemic. No federal student
loans have been referred for collection since March 2020, including
those in default. Under President Joe Biden, the Education Department
tried multiple times to give broad forgiveness of student loans, only to
be stopped by courts.
“American taxpayers will no longer be forced to serve as collateral for
irresponsible student loan policies,” Education Secretary Linda McMahon
said.
Beginning May 5, the department will begin involuntary collection
through the Treasury Department's offset program, which withholds
government payments — including tax refunds, federal salaries and other
benefits — from people with past-due debts to the government. After a
30-day notice, the department also will begin garnishing wages for
borrowers in default.
The decision to send debt to collections drew criticism from advocates,
who said borrowers had experienced whiplash and confusion with the
changing student loan policies between the Biden and Trump
administrations.
“This is cruel, unnecessary and will further fan the flames of economic
chaos for working families across this country,” said Mike Pierce,
executive director of the Student Borrower Protection Center.
Already, many borrowers have been bracing for obligations coming due.
In 2020, President Donald Trump paused federal student loan payments and
interest accrual as a temporary relief measure for student borrowers.
The pause in payments was extended multiple times by the Biden
administration through 2023, and a final grace period for loan
repayments ended in October 2024. That meant tens of millions of
Americans had to start making payments again.
Borrowers who don't make payments for nine months go into default, which
is reported on their credit scores and can go to collections.
Along with the borrowers already in default, around another 4 million
are 91 to 180 days late on their loan payments. Less than 40% of all
borrowers are current on their student loans, department officials said.
Layoffs at the Federal Student Aid office at the Education Department
have made it harder for students to get their questions answered, even
if they wanted to pay their loans, said Kristin McGuire, executive
director for Young Invincibles, a group that focuses on economic
security for younger adults.
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The U.S. Department of Education building is seen in Washington,
Dec. 3, 2024. (AP Photo/Jose Luis Magana, File)
And questions are swirling about certain income-driven repayment
programs after a February court ruling blocked some of the payment
plans. Borrowers in the more lenient, Biden-era SAVE Plan were
placed in forbearance, in which borrowers receive relief from
payments but still accrue interest. The Education Department in
February took down applications for income-driven repayment programs
— which tie a monthly payment to a person's income level — only to
bring them back online a month later.
“Things are really difficult to understand right now. Things are
changing every day,” McGuire said. “We can’t assume that people are
in default because they don’t want to pay their loans. People are in
default because they can’t pay their loans and because they don’t
know how to pay their loans.”
For borrowers in default, one step to avoid wage garnishment is to
get into loan rehabilitation, said Betsy Mayotte, president of The
Institute for Student Loan Advisors.
Borrowers must ask their loan servicer to be placed into such a
program. Typically, servicers ask for proof of income and expenses
to calculate a payment amount. Once a borrower has paid on time for
nine months in a row, they are taken out of default, Mayotte said. A
loan rehabilitation can only be done once.
Biden oversaw the cancellation of student loans for more than 5
million borrowers. Despite the Supreme Court's rejection of his
signature proposal for broad relief, he waived more than $183.6
billion in student loans through expanded forgiveness programs.
In her statement Monday, McMahon said Biden had gone too far.
“Going forward, the Department of Education, in conjunction with the
Department of Treasury, will shepherd the student loan program
responsibly and according to the law, which means helping borrowers
return to repayment — both for the sake of their own financial
health and our nation’s economic outlook,” she said.
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Associated Press writer Adriana Morga in New York contributed to
this report.
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