Trump Administration to resume collections on student loan borrowers in default

After a five-year hiatus, the U.S. Department of Education says it will begin resuming collections of defaulted student loans on May 5.

Of the more than 42.7 million student loan borrowers in the U.S., who owe a collective $1.6 trillion, the department says that more than 5 million have not made a payment in the past year. That number is expected to grow as an additional 4 million borrowers are approaching default status.

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

The department said it will begin notifying borrowers who are in default via email over the next two weeks, urging them to make a payment or to enroll in a repayment plan, and referring them to a government website providing information on how to do so.

Then, on May 5, the department will begin referring borrowers who remain in default to a collections program run by the Treasury Department.

“This could not have come at a worst time for millions of Americans,” said Aissa Canchola Bañez, Policy Director for the Student Borrower Protection Center, a nonprofit group that aims to reduce student debt. Those borrowers, she added, “are already finding themselves having to navigate such incredible economic uncertainty over the last few months.”

She also points to the fact that older borrowers tend to face the greatest struggles in repaying their loans: nearly 40 percent of federal borrowers over the age of 65 were in default on their student loans, according to a 2017 report from the Consumer Financial Protection Bureau. “These are older folks who are on fixed incomes,” she says.

When borrowers fall behind, Bañez added, their credit scores can take a hit, making it harder to qualify for more credit and other loans for things like housing and other basic needs.

The Education Department said in its notice that, later this summer, it will begin the process of garnishing wages—meaning payments would be automatically deducted from borrowers’ paychecks.