The U.S. Department of Education today announced that its Office of Federal Student Aid (FSA) will resume collection efforts on defaulted federal student loans beginning Monday, May 5th.
This marks the end of a long pause on collections that has been in place since March 2020. The Department emphasized that this action is necessary to protect taxpayers from bearing the burden of loans that borrowers willingly took out to finance their higher education.
This restart of collections will be accompanied by a significant communication and outreach initiative aimed at ensuring borrowers understand their options for returning to repayment or exiting default.
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“American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies. The Biden Administration misled borrowers: the executive branch does not have the constitutional authority to wipe debt away, nor do the loan balances simply disappear,” said Secretary of Education Linda McMahon. “Hundreds of billions have already been transferred to taxpayers. 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.”
The Department highlighted the current state of the federal student loan portfolio, noting that:
- 42.7 million borrowers owe over $1.6 trillion in student debt.
- More than 5 million borrowers have not made a payment in over 360 days and are in default, many for over seven years.
- An additional 4 million borrowers are in late-stage delinquency (91-180 days).
- This could lead to nearly 10 million borrowers in default within the coming months, representing almost 25 percent of the federal student loan portfolio.
- Currently, only 38 percent of borrowers are in repayment and current on their loans.
The Department also addressed processing delays, stating that almost 1.9 million borrowers have been unable to even begin repayment due to a processing pause initiated by the previous administration.
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The processing of applications for income-driven repayment (IDR) plans has been on hold since August 2024. The Department assured that it is working with federal student loan servicers and anticipates resuming this processing next month.
Involuntary Collections to Resume for Defaulted Borrowers
Starting May 5th, FSA will reactivate the Treasury Offset Program, managed by the U.S. Department of Treasury. This program allows for the withholding of federal payments, such as tax refunds, to offset defaulted student loan debt.
Over the next two weeks, all borrowers in default will receive email communications from FSA informing them of these developments and urging them to contact the Default Resolution Group. Borrowers will be encouraged to arrange monthly payments, enroll in an income-driven repayment plan, or pursue loan rehabilitation. Later in the summer, FSA will begin sending required notices for administrative wage garnishment.
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Furthermore, the Department will authorize guaranty agencies to resume involuntary collection activities for loans under the Federal Family Education Loan Program.
The Department emphasized that the Higher Education Act mandates all FSA collection activities and will only proceed after borrowers have received adequate notice and the opportunity to repay their loans in accordance with the law.
Support Initiatives for Current and Struggling Borrowers
FSA stressed its commitment to providing borrowers with clear and up-to-date information about their repayment options to facilitate a successful return to repayment. Over the next two months, the Department will conduct an extensive communications campaign utilizing email and social media to remind borrowers of their obligations and provide resources and support.
These resources include the new Loan Simulator, the AI Assistant (Aiden), and extended servicer call center hours.
Additionally, FSA will launch an enhanced Income-Driven Repayment (IDR) process designed to simplify enrollment and eliminate the annual income recertification requirement. Further details on this enhanced process will be available on StudentAid.gov next week.
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The Department of Education intends to collaborate with various partners, including states, higher education institutions, financial aid administrators, college access and success organizations, third-party servicers, and other stakeholders, to amplify the message that student and parent borrowers are responsible for repaying their loans, not taxpayers.
The Department reiterated that there will be no broad-based loan forgiveness. These combined efforts aim to return the federal student loan portfolio to a state of repayment, benefiting both borrowers and taxpayers.
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