The US Department of Education is reinstating the collections of defaulted federal student loans, creating a moment of reckoning for over five million borrowers.
Key Insights
- The US Department of Education is resuming involuntary collection of defaulted federal student loans on May 5, ending a pause that was implemented in 2020.
- Over five million borrowers are currently in default with more in late-stage delinquency.
- The Treasury Offset Program will restart, collecting debts by intercepting payments such as tax refunds and government benefits.
- Borrowers are encouraged to contact the Default Resolution Group to explore repayment options.
Chronicle of the Hiatus
Collections on defaulted loans have been on hold since March 2020, initiated during President Donald Trump’s first term due to the 2020 health emergency. This pause provided temporary relief as borrowers faced financial struggles amidst unprecedented times. Initially, it was part of a bipartisan understanding to ease the burden on Americans facing economic hardship.
The reinstatement of collections marks a significant policy shift. “Beginning May 5, the department will begin involuntary collection through the Treasury Department’s offset program, which withholds payments from the government — including tax refunds, federal salaries and other benefits — from people with past-due debts to the government,” stated the US Department of Education.
Education Department to resume 'involuntary collections' of defaulted student loans https://t.co/zEOg1SnefQ
— CNBC (@CNBC) April 21, 2025
Efforts at Debt Forgiveness
Under the Biden administration, there was a significant push for student debt relief. Part of President Biden’s campaign, loan forgiveness was seen as a way to provide lasting financial stability to millions. However, these efforts were thwarted when the US Supreme Court ruled in 2023 that Biden’s debt relief plan was unconstitutional without congressional approval. An attempt to introduce “SAVE,” a student loan repayment program, was blocked in court, further complicating Biden’s vision for debt relief.
The Department of Education criticized the previous administration for maintaining the pause on student loan collections, accusing it of creating confusion among borrowers. “American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies,” US Secretary of Education Linda McMahon stated when announcing the resumption of collections. “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.”
What Borrowers Need to Know
As collections resume, defaulted borrowers face several pathways forward. The Treasury Offset Program will once again intercept tax refunds, Social Security benefits, and even federal salaries to recover overdue loans. Borrowers may be able to avoid these consequences by contacting the Default Resolution Group, where they can make payments, enroll in income-driven repayment plans, or sign up for loan rehabilitation.
People who graduated at the height of the 2020 health emergency “may have no experience with loan repayment, so it is important to educate them about the process, including their rights and responsibilities,” said higher education expert Mark Kantrowitz.
The Department of Education urges those in default to take proactive steps. Notices will be distributed to affected borrowers to guide them through the transition. Without these measures, many may face wage garnishment later in the summer.
Sources
- US education department to restart ‘involuntary’ student loan collections
- Education Department to resume ‘involuntary collections’ of defaulted student loans
- Involuntary collection of defaulted student loans to resume, Education Department says
