U.S. resumes collections on defaulted student loans

[UNITED STATES] In a Wall Street Journal op-ed, U.S. Secretary of Education Linda McMahon outlined the Biden administration’s decision to restart collections on federal student loans that are currently in default—a move that could affect nearly two million borrowers. “On May 5, we will begin the process of moving roughly 1.8 million borrowers into repayment plans and restart collections of loans in default,” McMahon wrote.

The announcement comes as the federal student loan debt portfolio surpasses $1.6 trillion. With deficits mounting, economists have expressed concern over prolonged loan delinquency and its potential impact on public finances. Although the Biden administration previously extended repayment relief, McMahon argued that continued forbearance would only deepen the financial strain.

“Borrowers who don’t make payments on time will see their credit scores go down, and in some cases their wages automatically garnished,” McMahon warned.

What Borrowers Should Expect

Borrowers in default can expect an email in the coming weeks informing them of the policy change, according to the Department of Education. Officials are encouraging these individuals to reach out to the department’s Default Resolution Group to explore options such as setting up monthly payments, enrolling in income-driven repayment plans, or beginning the loan rehabilitation process.

Loan rehabilitation allows borrowers to make nine affordable monthly payments within a ten-month period to bring their loans back into good standing. However, critics have pointed to the complexity of the process and a lack of awareness among eligible borrowers. Advocacy groups are urging the administration to simplify access to these relief programs, especially for low-income individuals.

To assist with the transition, the Department is expanding Federal Student Aid call center hours, updating its online loan simulator to help borrowers explore repayment strategies, and offering support through an AI assistant named Aidan.

“We are committed to ensuring that borrowers are paying back their loans, that they are fully supported in doing so, and that colleges can’t create such a massive liability for students and their families, jeopardizing their ability to achieve the American dream,” McMahon stated.

Kalman Chany, a financial aid expert and author of Paying for College from The Princeton Review, emphasized the importance of acting quickly.

“Be proactive,” Chany advised. “Best to take care of this as soon as possible, as the loan servicers’ and the U.S. Department of Education’s customer support will get busier the closer it gets to May 5.”

A Controversial Restart

Collections on defaulted loans have been paused since March 2020. Although the broader pandemic-related forbearance period ended in September 2023, borrowers were given an additional year of protection from the consequences of missed payments—an extension that officially expired on September 30, 2024.

McMahon criticized the Biden administration’s earlier efforts to forgive student loans, referencing the Supreme Court’s 2023 decision blocking broad cancellation efforts.

“President Biden never had the authority to forgive student loans across the board,” she wrote. “But for political gain, he dangled the carrot of loan forgiveness in front of young voters, among other things by keeping in place a temporary Covid-era deferment program.”

She defended the decision to restart collections as a measure to uphold financial responsibility, not to punish borrowers. “Debt doesn’t go away; it gets transferred to others,” McMahon said. “If borrowers don’t pay their debts to the government, taxpayers do.” Currently, approximately 42 million Americans hold federal student loans, with around 5.3 million in default.

Broader Implications and Political Pushback

The policy shift has reignited debate over the long-term viability of the federal student loan system. With tuition costs continuing to climb and many families relying on borrowing to finance higher education, analysts warn that the system is at risk of perpetuating cycles of debt and default—particularly among minority and first-generation college students.

“It really is time to start repaying again,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget. “While a short repayment pause was justifiable early in the pandemic, that was five years ago — and it makes no sense today.”

The move also reflects broader changes in federal education policy under former President Donald Trump, who signed an executive order to begin dismantling the Department of Education after nominating McMahon as Secretary. Under that order, federal student loan management responsibilities were transferred to the Small Business Administration.

Some critics, including Mike Pierce of the Student Borrower Protection Center, argue that the administration is worsening the situation for borrowers already in default.

“For five million people in default, federal law gives borrowers a way out of default and the right to make loan payments they can afford,” Pierce said. “Since February, Donald Trump and Linda McMahon have blocked these borrowers’ path out of default and are now feeding them into the maw of the government debt collection machine.”