Starting May 5, the US Education Department will begin series on failed federal student loans, ending a pandemic-era ice and putting thousands of lenders at risk of pay garnish and seized tax payments.
“American taxpayers will no longer be forced to offer as collateral for reckless student loan plans, ” said Education Secretary Linda McMahon, announcing that the division will start referring late payments to the Treasury Department’s offset program. Consumers in default may experience withheld federal payments and garnished income after a 30-day see.
Now, around 5. 3 million lenders are in default, and another 4 million are nearing that level. Consumers are considered in default after missing payment for nine times, a position that damages breaks and opens the door to series.
The move, a shift under the Trump administration, follows years of leniency during and after the Covid-19 pandemic. Federal student loan collections were paused in March 2020 and remained so through the Biden administration ’s multiple — and mostly blocked — efforts at sweeping loan forgiveness.
Critics say the restart will hurt working families still struggling with inconsistent policy changes. “This is cruel, unnecessary and will further fan the flames of economic chaos, ” said Mike Pierce, executive director of the Student Borrower Protection Center.
Confusion has mounted amid layoffs at the Federal Student Aid office, paused repayment applications, and legal uncertainty over income-driven plans like the Biden-era SAVE Plan. “Things are really difficult to understand right now, ” said Kristin McGuire of Young Invincibles. “People are in default because they can’t pay their loans and because they don’t know how to pay their loans. ”
Borrowers still have an option to avoid garnishment through loan rehabilitation, which involves nine on-time payments and is available only once, said Betsy Mayotte of The Institute for Student Loan Advisors.
While President Biden has approved over$ 183 billion in targeted relief for more than 5 million borrowers, McMahon said the administration went too far. “Going forward … we will shepherd the student loan program responsibly and according to the law, ” she said.
