If you’ve got student loans in default, there’s a major update you should know about. The Education Department just announced a change that could impact over 5 million people starting next month.
This all goes back to when payments were first paused during Trump’s first term, when COVID-19 was just getting started.
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Things stayed frozen, until now.
Over 5 million people are in default
Right now, about 5.3 million people are still stuck in default on their federal student loans. And according to the Education Department, that number could almost double in the next few months.
Yeah, it’s a lot.
Collections have been paused for a while
For a while now, no one’s loans were being sent to collections. Biden actually tried a bunch of times to get some loan forgiveness plans going.
He managed to cancel a ton of debt — like, for more than 5 million borrowers.
The courts blocked Biden’s big plan
But when he tried to go bigger with it, the courts weren’t having it. In 2023, the Supreme Court shot it down, saying his plan wasn’t constitutional because Congress hadn’t signed off on it.
Involuntary payments are starting up again
Now they’re flipping the switch. Payments are starting up again, and not the friendly kind. These are called “involuntary” repayments, and folks who are affected will start getting notices real soon.
The Department said: “Beginning May 5, the department will begin involuntary collection through the Treasury Department’s offset program, which withholds payments from the government — including tax refunds, federal salaries and other benefits — from people with past-due debts to the government.”
And if that wasn’t enough, they added that people’s wages will also be garnished. But they’ll get a 30-day warning first.
Missing payments for months puts you in default
So here’s how it works: if you miss your student loan payments for nine months straight, the loan gets marked as defaulted.
That can end up on your credit report, and then it might go to collections. Not fun.
A lot of people are already behind
Officials say there are around 4 million more borrowers who aren’t technically in default yet, but are somewhere between 91 and 180 days late.
And apparently, less than 40% of all borrowers are actually current on their loans. That’s… not great.
Officials blame Biden and promise changes
Education Secretary Linda McMahon didn’t hold back.
She said: “American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies. The Biden Administration misled borrowers: the executive branch does not have the constitutional authority to wipe debt away, nor do the loan balances simply disappear.”
She added: “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.”
