Student loan collections restart May 5: Here's what you need to know

The federal government on Monday will resume collecting defaulted student loan payments from millions of people for the first time since the start of the pandemic, officials said.

The Trump administration said it would collect the debt through a Treasury Department program that withholds payments through tax refunds, wages and government benefits.

The U.S. Education Department has not collected on defaulted loans since March 2020. Of the nearly 43 million people who owe money, only a little more than a third have made regular payments, the agency said.

In the last five years, student debt has grown to $1.6 trillion, officials said. Education Secretary Linda McMahon said taxpayers would now be saved from shouldering that cost.

“American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies,” McMahon said in an April 21 .

The move comes after years of legal back-and-forth about loan forgiveness and at a time when advocates say student borrowers are stretched thin from inflation and growing concerns over the cost of living.

“We’re in the worst student loan landscape that we’ve ever been before,” said Sabrina Calazans, executive director of the Student Debt Crisis Center, a nonprofit that advocates for student debt cancellation.

“The plans and proposals being put forth by the Trump administration are going to harm millions of individuals and families,” Calazans added. “It’s going to create a financial catastrophe where folks will not be able to meet their basic needs.”

What happens now?

All borrowers in default should have received an email from the Office of Federal Student Aid alerting them to the changes.

Officials said the email urges borrowers to contact the  to either make a monthly payment, enroll in an income-based repayment plan or sign up for  — a process that can erase a default status if the borrower makes a set of payments during a specific time frame, depending on the type of loan.

To schedule monthly payments, borrowers who have not changed their marital status or income would have needed to send their most recent Federal 1040 tax return to the Education Department, according to instructions outlined on the Default Resolution Group’s website.

The Education Department said it will be using the Treasury Department’s Offset Program to collect on the debt by withholding payments through tax refunds, salaries and benefits like Social Security payments.

Under the program, the government can withhold entire federal tax refunds and up to 15% of a federal worker’s disposable pay. The government said the FSA would send notices about wage garnishment later this summer.

In an April McMahon said borrowers who don’t make payments on time will see their credit scores go down, “and in some cases their wages automatically garnished.”

What happened to loan forgiveness?

Before leaving the White House in January, then-President Joe Biden announced his administration had canceled student debt for more than 5 million people, including many who attended schools that defrauded students, , as well as public service workers and those with total and permanent disabilities.

“Since Day One of my Administration, I promised to ensure higher-education is a ticket to the middle class, not a barrier to opportunity, and I’m proud to say we have forgiven more student loan debt than any other administration in history,” Biden  at the time.

In its April news release, however, Trump’s Education Department made it clear that “there will not be any mass loan forgiveness” going forward.

McMahon blamed the Biden administration for transferring hundreds of billions of dollars in debt to taxpayers and keeping borrowers in a “confusing limbo” about payments.

“The executive branch does not have the constitutional authority to wipe debt away, nor do the loan balances simply disappear,” she said.

Trump paused collection on most federal student loans in March 2020, and Biden continued to pause collection when he took office in 2021.

Biden had proposed allowing eligible borrowers to cancel up to $20,000 in debt until the U.S. Supreme Court ruled against his  in 2023. The plan would have cost more than $400 billion, and about 43 million Americans would have been eligible to participate.

In the Wall Street Journal op-ed, McMahon said Biden “never had the authority to forgive student loans across the board.”

She said resuming collections was not an act of unkindness to student borrowers but an act of fairness.

“Borrowing money and failing to pay it back isn’t a victimless offense. Debt doesn’t go away; it gets transferred to others,” she said. “If borrowers don’t pay their debts to the government, taxpayers do.”

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