Federal student loan repayments will resume on May 5th. Here's a rundown of what borrowers should be aware of.
Let's get the lowdown:
The federal government is shaking things up, folks! Starting May 5, they'll restart collecting defaulted student loan payments from millions of folks who've been dodging their debts since the pandemic hit. The Treasury Department's gonna help out with this, taking payments through your tax refunds, wages, and government benefits.
This hasn't happened since March 2020, and out of 43 million folks who owe, only a third have been keeping up with their payments, according to the U.S. Education Department.
Student debt has ballooned to a whopping $1.6 trillion over the last five years. And now, with the resumption of collections, taxpayers can look forward to not being saddled with that debt anymore, as Secretary Linda McMahon announced in an April news release.
But we're in a bit of a financial squeeze right now. With rising inflation and living costs, student borrowers are feeling the strain. Sabrina Calazans, the executive director of the Student Debt Crisis Center, calls this the worst student loan landscape we've ever seen. She fears the Trump administration's plans will hurt millions, creating a financial disaster that could leave people unable to meet their basic needs.
So, what's the deal now?
Borrowers in default should've received an email from the Office of Federal Student Aid alerting them to these loan collector comeback kid vibes. They're urged to get in touch with the Default Resolution Group to discuss payment plans, income-based repayment, or loan rehabilitation - the last of which can wipe your default status clean if you make payments during a specified time frame.
To schedule monthly payments, you'd have to send your most recent Federal 1040 tax return to the Education Department, according to their online instructions. And the feds will use the Treasury Department's Offset Program to collect on the debt by withholding your tax refunds, salaries, and benefits like Social Security payments.
In an opinion piece published in The Wall Street Journal, McMahon warned that borrowers who don't pay up will see their credit scores tank and possibly have their wages garnished.
But what about loan forgiveness?
Before Joe Biden took office, his administration had already canceled student debt for over 5 million people, including those who attended defrauded schools like DeVry University, public service workers, and those with total and permanent disabilities.
However, in April, Trump's Education Department made it clear that no mass loan forgiveness would take place going forward. McMahon blamed the Biden administration for transferring hundreds of billions of debt to taxpayers and keeping borrowers in a confusing limbo about repayments.
Trump paused collections on most federal student loans in March 2020, and Biden continued this pause when he took office in 2021. Biden had proposed allowing eligible borrowers to cancel up to $20,000 in debt, but the U.S. Supreme Court nixed his student loan debt relief plan in 2023.
In the end, McMahon argued that resuming collections wasn't a cruel move but a fair one. Debts don't just disappear, she said; they get transferred to others. And if borrowers can't pay the government, taxpayers will foot the bill.
- Millions of individuals, who have defaulted on their student loans since the pandemic, will have their payments resumed starting May 5, with the assistance of the Treasury Department.
- Amidst rising inflation and living costs, the resumption of student loan collections is causing strain for many borrowers, according to Sabrina Calazans, executive director of the Student Debt Crisis Center.
- In an effort to make payments, borrowers in default can reach out to the Default Resolution Group to discuss payment plans, income-based repayment, or loan rehabilitation.
- As a consequence of not paying their student loans, borrowers may face a decreased credit score and potential wage garnishment, according to Secretary Linda McMahon.
- The Education Department's Office of Federal Student Aid has urged borrowers to send their most recent Federal 1040 tax return to schedule monthly payments, which will be collected through the Treasury Department's Offset Program.
- Despite previous loan forgiveness initiatives by the Biden administration, no mass loan forgiveness is planned for the future, as announced by Trump's Education Department in April 2023.
