‘The debt will not go away. Education Secretary Linda McMahon said it would be transferred to others.
The Ministry of Education resumed its collection on May 5 for the first time in five years for a default federal student loan, affecting around 5 million borrowers.
Since March 2020, the department has not been collected on default loans. When Congress mandated student and parent borrowers to resume student loan payments in October 2023, the previous administration granted borrowers another year to be protected from the adverse effects of missed payments. Former President Joe Biden also did not lift the freeze on his collection.
This is expected to change from next month, Education Secretary Linda McMahon said on April 21.
“U.S. taxpayers are not forced to act as collateral for irresponsible student loan policies,” McMahon said in a statement. “The Biden administration misunderstood the borrowers. The administration has no constitutional authority to wipe out debts, and the loan balance will not simply disappear.”
According to the Department of Education, 42.7 million borrowers currently owe more than $1.6 trillion in student loan debt.
Reopening the Ministry of Finance Offset Program
The Federal Office of Student Aid will resume the Treasury’s offset program, which is administered by the Treasury.
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All borrowers may have already received it from the Federal Student Aid Agency or may have received it immediately. You will also contact the default solution group to request that you register for an income-driven repayment plan, sign up for loan rehabilitation, or make monthly payments.
The department has confirmed that it will add weekend time to the Federal Student Aid Call Center Operating Office next month. They also create “loan simulators” to calculate repayment plans and employ artificial intelligence assistants to help borrowers devise financial strategies.
The default loan is one that the borrower has not made any payments for more than 270 days.
Wage decoration
The borrower, who remained the default, could finally see the revenues decorated.
The federal government has vast collection powers over federal debt, allowing authorities to seize up to 15% of the borrower’s disposable income.
In a press release, the Ministry of Education said it will send a notice regarding the decoration of administrative wages later this summer.
“Borrowers who don’t pay on time will see their credit scores drop, and in some cases their wages have been automatically earned,” McMahon wrote in the Wall Street Journal last week.
In March, a New York Federal Reserve Bank economist said more than 9 million student loan borrowers who are behind this year’s payments could face a “significant drop” in their credit score this year.
They estimate that some borrowers can witness their credit score dropping by 171 points.
Repayment, consolidation, or rehabilitation
Student loan borrowers usually have three ways to get out of default.
First, you will fully repay the loan.
Second, loan consolidation allows borrowers to repay the default loan on new terms.
Finally, loan rehabilitation allows borrowers to retrieve the loan from the default and remove the default row from the credit report. However, there is a warning. Individuals must make multiple consecutive payments on time for pre-arranged amounts.
Taxpayer protection
Why is the Trump administration resuming federal student loan collection?
US officials say the former president has no authority to allow student loans. They also need to protect taxpayers from being responsible for the costs of loans accepted by students.
“The debt will not go away. It will be transferred to someone else,” writes McMahon. “If borrowers don’t pay the government the debt, taxpayers will.”
Education Secretary Linda McMahon will attend the International Women’s Courage Awards Ceremony held at the State Department in Washington on April 1, 2025. Brendan Smialowski/AFP via Getty Images
Maya MacGuiineas, chairman of the Responsible Federal Budget Committee, agrees to the actions of the department.
“The administration is taking the right approach by implementing creative and aggressive outreach strategies to fully resume repayments and ensure borrowers understand their obligations.”
Mike Pierce, executive director of the Student Borrower Protection Centre, said the new efforts are “cruel and unnecessary and will further incite the flames of economic disruption for working families in the country.”
Numbers
Officials estimate that as many as 10 million borrowers can default in the coming months. Approximately 5 million borrowers have not completed their payments in 360 days, it is the default, with an additional 4 million borrowers in the late stages (91-180 days).
If this occurs, about a quarter of the federal student loan portfolio will default to.
“Only 38% of borrowers have repaid and are current on student loans,” the department said. “Most of the remaining borrowers are in arrears in payments, interest-free tolerance, or interest-free deferrals. A small portion of borrowers are within a six-month grace period or within school.”
