Student Loan Collections to Restart for more than 5 million Borrowers in Default

[bjl584]

Student loan collections restart for borrowers in default

Personal Finance Student loan collections restart for more than 5 million borrowers in default


Published Mon, May 5 20255:30 AM EDT

Annie Nova
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Key Points

• The U.S. Department of Education will resume collecting on defaulted student loans on Monday.
• More than 5 million borrowers are currently in default, and that total could swell to roughly 10 million borrowers within a few months, according to the Trump administration.
• The federal government has extraordinary collection powers on its student loans and it can seize borrowers’ tax refunds, paychecks and Social Security retirement and disability benefits.

A person walks on campus at Muhlenberg College in Allentown, Pennsylvania, U.S. March 26, 2025.
Hannah Beier | Reuters

The U.S. Department of Education is set to restart collection efforts on defaulted student loans on Monday — putting millions of borrowers at risk of wage garnishment and other consequences.

The federal government has extraordinary collection powers on its student loans and it can seize borrowers’ tax refunds, paychecks and Social Security retirement and disability benefits.

More than 42 million Americans hold student loans, and collectively, outstanding federal education debt exceeds $1.6 trillion. More than 5 million borrowers are currently in default, and that total could swell to roughly 10 million borrowers within a few months, according to the Trump administration.

The Trump administration has been critical of former President Joe Biden’s student loan relief efforts, questioning the logic of directing financial resources at those who’ve benefited from a college degree.

“American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies,” said U.S. Secretary of Education Linda McMahon in a statement.

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Collection activity on federal student loans has mostly been paused for half a decade. During that period, there have been sweeping changes and disruptions to the lending system.

Millions of borrowers who signed up for the Biden administration’s new repayment plan, known as SAVE, were caught in limbo after GOP-led lawsuits managed to get the plan blocked in the summer of last year. Many of those borrowers will now have to switch out of a Biden-era payment pause and into another repayment plan that will spike their monthly bill.

In recent months, the Trump administration has eliminated the forgiveness provision from some student loan repayment plans.


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NY Fed: 9 million student loan borrowers face significant drops in credit score

It also terminated staff at the Education Department, including many of the people who helped assist borrowers. Now some student loan borrowers report waiting hours on the phone before being able to reach someone about their debt. (The Trump administration has told defaulted borrowers to contact the department for options on getting current.)

“The timing of the layoffs is unfortunate, given the need for borrowers to get help,” said higher education expert Mark Kantrowitz, who added that he’s heard from people stuck waiting on hold as long as eight hours to speak with someone at the department or their loan servicer. Borrowers in default may see credit scores decline


Restarting collections while the federal student loan system is facing so much uncertainty “will further fan the flames of economic chaos for working families across this country,” said Mike Pierce, the executive director of the Student Borrower Protection Center.

In addition to garnished paychecks and benefits, the millions of borrowers who are already late on their payments may see their credit scores tank by as much as 129 points as the Education Department ramps up collection activity, VantageScore recently wrote.

Meanwhile, the Federal Reserve predicted in March that some people with a delinquency could see their scores fall by as much as 171 points. Credit scores typically range from 300 to 850, with around 670 and higher considered good.

Lower credit scores can lead to higher borrowing costs on consumer loans such as mortgages, car loans and credit cards. Sign Up for Our NewsletterYour Wealth

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“We’ve been seeing clients with delinquent accounts who reached out after noticing a drop in their credit scores,” said Carolina Rodriguez, director of the Education Debt Consumer Assistance Program in New York.

She said one client hasn’t made a payment on her student debt since last year because she can’t afford her $200 monthly bill.

“She’s making $45,000 and living in New York City,” Rodriguez said. “Every month, she’s in the red.”

[Fishindude77]

In my opinion these periodic promises of student loan cancellation have done some serious damage to many of these loan holders.
Instead of knuckling down and working towards paying them off as they should have, some have done bare minimum and accumulated a lot more interest debt in hopes that the great loan cancellation savior was coming.

What a dirty rotten way to buy favor, promising something you don't have the authority to control.

Hopefully new and future students will be a lot more careful and thoughtful regarding borrowing for education.

[ua_guy]

The debt should have been cancelled. And people who have had multiple bankruptcies shouldn't be in a position to dictate practices around debt collection and borrowing!

[Jluke]

Predatory lenders taking advantage of mathematically challenged loan borrowers whenever they can.

some borrowers hoping they get a free pass

borrower is slave to the lender - Dave Ramsey

[Fishindude77]

The debt should have been cancelled.

What's the logical rationale for cancelling debt?

If this is allowed, should the government reimburse all past college students who paid for their educations? Seems only fair.
How about folks that didn't go to college? If students are gifted $$$ thousands for their education to get into the workforce, shouldn't others be gifted the same for their investments in their trades, tools, OJT or other such efforts required to join the workforce?

[ua_guy]

What's the logical rationale for cancelling debt?

If this is allowed, should the government reimburse all past college students who paid for their educations? Seems only fair.
How about folks that didn't go to college? If students are gifted $$$ thousands for their education to get into the workforce, shouldn't others be gifted the same for their investments in their trades, tools, OJT or other such efforts required to join the workforce?

It's the same idea behind mortgage debt write-off by large banks during the Great Recession. The borrowers are ultimately worth more to the lenders and the economy at large than seeking recourse for a single default. Students who have some higher education or a full degree have higher earning potential over their lifetimes than their uneducated counterparts, so it's pretty safe to do this given that fact, and the fact that the relief is being given to a group of people who do things like seek higher education to increase their value.

I've never wanted to be repaid for the cost of my education and I'm not jealous of anyone who gets relief for student loans, nor do I feel slighted by it. It doesn't affect my trajectory in life and quite honestly I think our world needs to witness more acts of grace.

[bjl584]

It's the same idea behind mortgage debt write-off by large banks during the Great Recession. The borrowers are ultimately worth more to the lenders and the economy at large than seeking recourse for a single default. Students who have some higher education or a full degree have higher earning potential over their lifetimes than their uneducated counterparts, so it's pretty safe to do this given that fact, and the fact that the relief is being given to a group of people who do things like seek higher education to increase their value.

I've never wanted to be repaid for the cost of my education and I'm not jealous of anyone who gets relief for student loans, nor do I feel slighted by it. It doesn't affect my trajectory in life and quite honestly I think our world needs to witness more acts of grace.

So new student loans are written every year.
Consequently, there is a new group of graduates every year saddled with student loan debt.

Would you advocate for a one time write off to just a certain group of students, or a continual write off that happens year after year into perpetuity?
The latter would essentially make higher education "free"

[ua_guy]

So new student loans are written every year.
Consequently, there is a new group of graduates every year saddled with student loan debt.

Would you advocate for a one time write off to just a certain group of students, or a continual write off that happens year after year into perpetuity?
The latter would essentially make higher education "free"

Ah, but it's more complicated than that. Loan forgiveness isn't for people who have just graduated from Yale and are successfully practicing neurosurgery but can't be bothered to repay their loans because they'd rather go to Hawaii or buy a new Porsche. The opposition would prefer you believe that, however. Nor is it for those who studied home economics and have just graduated as a professional stay at home parent who never intends to work.

Partial forgiveness up to a certain amount was proposed in exchange for service as:

-A teacher at low-income schools
-Government employees including active military and veterans
-Nonprofit work
-Medical professionals in government and nonprofit orgs
-People who developed a disability
-Income based payment plans forgiven after 25 years.

Most of the qualifications include a number of years of service worked, and/or 120+ months (10 years) of payments already made and income-based qualifications..

You can also receive forgiveness if:

-Your school has closed while you're enrolled and made off with your tuition money.
-Your school misled you about its certifications and programs and violated laws in doing so.
-You are a parent borrower and your child-student dies


The loan forgiveness program is starting to sound a LOT more reasonable, isn't it, after reading the above? It's a program that should probably be ongoing and the qualifications should continually adapt to new developments.

[bjl584]

Ah, but it's more complicated than that. Loan forgiveness isn't for people who have just graduated from Yale and are successfully practicing neurosurgery but can't be bothered to repay their loans because they'd rather go to Hawaii or buy a new Porsche. The opposition would prefer you believe that, however. Nor is it for those who studied home economics and have just graduated as a professional stay at home parent who never intends to work.

Partial forgiveness up to a certain amount was proposed in exchange for service as:

-A teacher at low-income schools
-Government employees including active military and veterans
-Nonprofit work
-Medical professionals in government and nonprofit orgs
-People who developed a disability
-Income based payment plans forgiven after 25 years.

Most of the qualifications include a number of years of service worked, and/or 120+ months (10 years) of payments already made and income-based qualifications..

You can also receive forgiveness if:

-Your school has closed while you're enrolled and made off with your tuition money.
-Your school misled you about its certifications and programs and violated laws in doing so.
-You are a parent borrower and your child-student dies


The loan forgiveness program is starting to sound a LOT more reasonable, isn't it, after reading the above? It's a program that should probably be ongoing and the qualifications should continually adapt to new developments.

I have no issue with what you laid out above.

One thing that I'd like to see added though, is for better controls on the front end.
Who is able to get a loan written? Should there be a cap? Maybe some education on what a student loan is and how it works? Or some soul searching on choosing a marketable major coming out of high school?

[ua_guy]

I have no issue with what you laid out above.

One thing that I'd like to see added though, is for better controls on the front end.
Who is able to get a loan written? Should there be a cap? Maybe some education on what a student loan is and how it works? Or some soul searching on choosing a marketable major coming out of high school?

I agree all those things would be good, too. The recourse for student loans is severe when the federal government pursues a borrower. It's not like some debt which you can basically walk away from with the only repercussion being a ding on your credit score. That should be enough for people to think a little deeper and longer about the reasons for taking money out, but a lot of young adults lack some of that life experience that gives us older folks some extra pause.

At minimum I would suggest term limits and minimum payments, based on income. 25 years is too long, IMO, to be financing education. If someone borrows $200k+ to go to advanced schooling, it probably shouldn't take 25 years to repay, although that is mortgage-sized debt... The cost of schooling needs to come down as part of the equation.

Not all loans are federal, though... Lots of private loans exist as well. And we're talking about banks, the same institutions who will finance cars at high rates for the credit-unworthy, who will send offers for credit cards at 30% interest. They WANT people to borrow because it's highly lucrative for them, so there's no real reward in getting people to slow down and consider the total cost of their education. They know they can double their money with a lot of borrowers and pursue them for life.