A several-year pause in sending defaulted student loans to collections will soon be gone. The Department of Education will begin collection on defaulted loans starting in May.
According to CNN, more than 5 million borrowers are in default, with fewer than 40% of borrowers current on their loans. The Treasury Department’s offset program will oversee the involuntary collection of the past-due debt starting on May 5. After 30 days, borrowers who are not current may have their wages garnished, The Associated Press reported.
The offset program garnishes federal and state payments, such as tax refunds, federal salaries and Social Security benefits to collect debts, CBS News reported.
Starting this summer, the Treasury will start the process for wage garnishment by non-federal employers, the Bureau of the Fiscal Service said.
The pause began during the COVID-19 pandemic, and no student loans have been sent to collection since March 2020.
Some people said borrowers were confused by the policy changes between former President Joe Biden’s administration and that of President Donald Trump.
Biden had sought student loan forgiveness several times, but the courts stopped his plan.
Layoffs at the Education Department’s Federal Student Aid office also impacted how borrowers can get questions answered, some advocates said.
“Things are really difficult to understand right now. Things are changing every day,” Kristin McGuire, Young Invincibles executive director, 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.”
Education Secretary Linda McMahon said, “American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies.”
“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,” McMahon said.
Trump paused payments during his first term, and the delay to repay was extended several times during Biden’s time in office. The final grace period ended in October, forcing those who had student loans to start paying again. If someone hasn’t paid in nine months, they are considered to be in default, which is then disclosed to credit reporting companies and can go to collections.
To avoid being listed in default, borrowers can ask their loan servicer to put them into a loan rehabilitation program. You’ll need proof of income to determine a payment amount. Then, once a person pays on time for a consecutive nine months, they are removed from default. The program can only be used once, Betsy Mayotte, The Institute for Student Loan Advisors, said.
Borrowers can also make a monthly payment or enroll in an income-driven repayment plan.
The Education Department’s student loan portfolio is about $1.8 trillion in debt, according to CNN.
Those considered in default will receive emails in the next two weeks telling them the next steps, with wage garnishment emails coming in the summer.