Education Dept. to resume collections on defaulted federal student loans for first time since 2020
The Department of Education is gearing up to restart collections on defaulted federal student loans in May, marking the first time since 2020 that this action will resume. The decision to pause referring federal student loans to collections was made by the Trump administration in March 2020 at the onset of the COVID-19 pandemic. However, the prolonged hiatus has raised concerns among Trump administration officials about the growing federal student loan portfolio.
A senior department official expressed worries about the federal student loan portfolio reaching a “fiscal cliff” if repayment collections do not commence soon. The official revealed that currently, only 40% of borrowers are current on their loan repayments, while a significant 60% are behind on payments. This situation has led to a record number of borrowers being at risk of delinquency and default.
The official disclosed that there are approximately four million borrowers in the late-stage delinquency stage, meaning they are between 91 and 180 days late on payments. The Trump administration firmly believes that American taxpayers cannot continue to serve as collateral for student loans, emphasizing that student loan debt must be repaid.
To address the issue, the Department of Education plans to implement a communications strategy to inform borrowers of their status and encourage them to enroll in auto-debit programs to reduce the number of delinquent borrowers. Starting on May 5, the Education Department will collaborate with the Treasury Offset Program to initiate the collection of overdue payments.
Additionally, the Department of Education is preparing to work with lawmakers on reforming higher education and the student loan repayment system. The agency aims to collaborate with Congress to streamline loan repayment processes and lower college costs for students.
In related bipartisan efforts, Senators John Thune and Mark Warner introduced the Employer Participation Repayment Act, which seeks to make permanent a provision allowing employers to contribute tax-free funds of up to $5,250 towards their employees’ student loans. Representatives Nicole Malliotakis and Scott Peters introduced a similar bill in the House.
The Department of Education’s announcement comes amidst the Trump administration’s plans to overhaul the agency and reduce the federal government’s influence in education. While President Donald Trump has expressed intentions to eliminate certain functions of the department, essential services like Pell Grants and student loans will continue at other agencies to ensure the welfare of students and borrowers.
In conclusion, the Department of Education’s decision to resume collections on defaulted federal student loans reflects a proactive approach to addressing the growing concerns surrounding the federal student loan portfolio. By working with lawmakers and implementing communication strategies, the agency aims to provide support to borrowers and promote financial responsibility in higher education.
