Education Department Will Restart Collection On Defaulted Student Loan Payments

Topline
The Education Department announced Monday student loan collections will restart in May for loans in default, a move that could impact millions of borrowers and end the years-long period of leniency then went into effect under former President Joe Biden.
The U.S. Department of Education building is seen in Washington, Monday, Nov. 18, 2024. Associated Press
Key Facts
The department said in a press release Monday collections of student loans that are in default will resume on May 5. The resumption in collecting defaulted loans will protect “taxpayers from shouldering the cost of federal student loans that borrowers willingly undertook to finance their postsecondary education,” according to the release. Education Secretary Linda McMahon criticized the Biden administration’s student loan policies and said in the statement, “the executive branch does not have the constitutional authority to wipe debt away, nor do the loan balances simply disappear.” The government has not collected defaulted loans since March 2020, when President Donald Trump first halted referring loans to collection during the COVID-19 pandemic.
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How Many Student Loan Borrowers Are In Default?
The Education Department said Monday there are more than 5 million borrowers who are in default because they haven’t made a payment in at least 360 days, and there are another 4 million borrowers who are in late-stage delinquency, meaning they haven’t paid in 91 to 180 days. The department estimated “almost 25 percent of the federal student loan portfolio will be in default” when those in late-stage delinquency move to default “in a few months.”
Big Number
42.7 million. That’s how many Americans owe money on student loans. That’s about one in six adults, and the country’s student loan portfolio is bigger than $1.6 trillion.
Key Background
Student loan payments were first paused in 2020 under Trump during his first term and the COVID-19 pandemic. As part of the Coronavirus Aid, Relief, and Economic Security Act, interest on student loans was set to 0% and collections on defaulted loans were paused. The pause was extended throughout the pandemic until September 2023, and the grace period after that ended in late 2024, the Associated Press reported. On Oct. 1, 2024, many borrowers had to begin repaying their loans again after the years-long pause. The Biden administration attempted to cancel student loans for millions of borrowers multiple times, but Republicans sued over his loan forgiveness plans and the Supreme Court ultimately rejected his plan to cancel $400 billion in student loan debt. Regardless, Biden’s White House said by the time he left office he had forgiven $188.8 billion in loans for more than 5 million borrowers, largely through existing forgiveness programs that had “past administrative failures,” like incorrectly counting past payments or not following through on promised forgiveness, CNN reported.
Tangent
Last month, Trump said he didn’t think the Education Department should oversee student loans and said he hopes to move them to the Small Business Administration, ABC News reported. They are currently overseen by the Federal Student Aid Office, which lives in the Education Department. Trump also signed an executive order in March that ordered McMahon to “take all necessary steps to facilitate the closure of the Department of Education and return authority over education to the States and local communities.”
Further Reading
Student loans in default to be referred to debt collection, Education Department says (Associated Press)