- Trump is restarting collections on defaulted student loans after a five-year pause.
- Five million borrowers are in default, and millions more are set to enter that phase in the summer.
- Those borrowers could face wage and federal benefit garnishment if they don't make payments.
The five-year relief period is over, and defaulted student-loan borrowers are left with two options: pay up or face the consequences.
On May 5, President Donald Trump's administration officially restarted the process to collect defaulted borrowers' student loans. It marks the end of a yearslong pause that started under Trump in 2020 and continued under former President Joe Biden, during which borrowers who were behind on their student-loan payments did not face any penalties.
The Department of Education announced two weeks ago that the pause will end, and borrowers who don't make payments could eventually face seizure of federal benefits like Social Security, eventual wage garnishment, and hits to their credit scores.
"Restarting collections is something that was going to have to happen eventually," Preston Cooper, a senior fellow at the conservative think-tank American Enterprise Institute, told Business Insider. "It was a matter of when, not a matter of if."
Five million student-loan borrowers are currently in default, and millions more are expected to enter default by the summer. The department said it would begin sending emails to defaulted borrowers notifying them of the collections restart. While Cooper said it's unlikely borrowers would start seeing their federal benefits and salaries withheld immediately, the consequences could start trickling in.
Linda McMahon, Trump's education secretary, said it's necessary to restart the collections system following Biden's years of relief.
"Going forward, the Department of Education, in conjunction with the Department of Treasury, will shepherd the student loan program responsibly and according to the law, which means helping borrowers return to repayment—both for the sake of their own financial health and our nation's economic outlook," McMahon said in a statement.
What's next for borrowers behind on payments
There are two buckets of student-loan borrowers who could face the consequences of Trump's collections restart: those who are currently in default, meaning they have been behind on payments for more than 270 days, and those who are delinquent, meaning they have been behind on payments for less than 270 days.
Borrowers in the default category will be the first to experience the Treasury Offset Program, which is responsible for withholding certain government benefits, like tax refunds or a portion of the borrower's Social Security check.
Cooper said that the consequences will likely not be immediately felt. Since tax refunds come once a year, some borrowers might not notice that their refunds were seized.
Wage garnishment, in which the government collects a portion of a borrower's paycheck to apply toward their defaulted student loan, would be much more acutely felt. The Treasury is required to notify borrowers 60 days in advance of its intent to withhold benefits or salary, which is why the Department of Education said it would begin sending notices of wage garnishment "later this summer."
However, borrowers currently in default have been in default for years, and Cooper said it would be difficult for the government to locate them and seize their benefits.
"They may not even be working. They might not have any income," Cooper said. "So, for a lot of those 5 million borrowers, even though the collection system is technically turning back on, they might not see any consequences immediately, because the government has to find them first, and it also has to find some income or wages to garnish."
To get out of default, borrowers can rehabilitate their loan, which would require making nine consecutive payments at an amount determined by the loan servicer. That process is lengthier than the other option — loan consolidation — in which borrowers with multiple defaulted loans can consolidate them into one direct federal loan. Doing so would allow the borrower to enroll in an income-driven repayment plan to make monthly payments.
Impact of the abrupt restart
Along with the 5 million borrowers in default, the Department of Education said that another 4 million borrowers are in late-stage delinquency — behind on payments for 91 to 180 days — meaning that by the summer, almost 10 million borrowers will be in default.
The short notice of the collections restart will cause significant hardship for those already struggling to pay off their student loans, Sara Partridge, associate director of higher education at the left-leaning think tank Center for American Progress, told BI.
"The consequences can include garnishing a borrower's wages, their tax refund, and even their Social Security benefit. It can also damage their credit score and force them to pay more for an auto or home loan, or prevent them from receiving one altogether," Partridge said.
Another concern with the collections restart is that delinquent borrowers just might not be aware that they have to restart payments. Cooper said that many borrowers were taking advantage of the relief under Biden and the potential for student-loan forgiveness, and borrowers did not receive any guidance during that time on how to prepare for eventual payments.
"There was no real concerted effort to raise awareness among borrowers that payments were going to be due again," Cooper said.
More broadly, the collections restart comes amid a period of uncertainty for student-loan borrowers. The Department of Education paused processing of income-driven repayment applications, and millions of borrowers are in forbearance due to ongoing legal challenges to Biden's SAVE income-driven repayment plan.
At the same time, the Trump administration is attempting to dismantle the Department of Education altogether.
"There really are very urgent material challenges that borrowers are facing that the Department of Education should work proactively to address, to prevent harm from happening, and not take an action such as restarting this program at a time of such chaos that will harm borrowers who are already struggling to navigate the system through no fault of their own," Partridge said.
Are you a student-loan borrower in default or concerned about falling behind? Contact this reporter via email at [email protected] or Signal at asheffey.97. Use a personal email address and a nonwork device; here's our guide to sharing information securely.
