ED Announces Forthcoming Resumption of Defaulted Loan Collections
By Maria Carrasco, NASFAA Staff Reporter
The Department of Education (ED) on Monday announced that it will resume the collections process for defaulted federal student loans on Monday, May 5, after a five-year pause due to the Covid-19 pandemic.
In its press release, ED outlined its next steps to resuming collections of defaulted federal student loans. On May 5, the Office of Federal Student Aid (FSA) will restart the Treasury Offset Program, which is administered by the Treasury Department, and allows the government to withhold federal payments, such as tax refunds and Social Security benefits, from borrowers in default.
According to ED, within the next two weeks, all borrowers who are currently in default on their federal student loans will receive an email from FSA, with information on how to contact the Default Resolution Group, where borrowers can make a monthly payment, enroll in an income-driven repayment plan (IDR), or sign up for loan rehabilitation.
Starting this summer, FSA will send notices beginning administrative wage garnishment for federal Direct Loan borrowers in default, which allows loan holders to withhold up to 15% of a borrower's disposable income directly from their paycheck. ED wrote that it will also authorize guaranty agencies the ability to begin involuntary collections on loans under the Federal Family Education Loan (FFEL) Program.
During the Biden administration, ED created an “on-ramp” period for the resumption of student loan repayment after the Covid-19 pandemic pause. The Trump administration, in Monday’s press release, alleges that the Biden administration “refused” to lift the collections pause on defaulted student loans, which have kept borrowers in a confusing limbo for the past few years.
Education Secretary Linda McMahon said in a statement that 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,” McMahon said. “Hundreds of billions have already been transferred to taxpayers. 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.”
ED released several data points on the current state of the federal student loan portfolio, including that over 5 million borrowers have not made a monthly payment in over 360 days and are in default, and 4 million borrowers are in late stage delinquency. This could lead to roughly 10 million borrowers in default in the next few months, according to ED, which would be about a quarter of the entire federal student loan portfolio. Additionally, 38% of borrowers are in repayment and current on their student loans.
ED noted in its press release Monday that FSA is “committed” to keeping borrowers updated with information about their student loan payments. Over the next two months, FSA said it will conduct a “robust” communications campaign to engage all borrowers on the importance of repayment. That includes conducting outreach to borrowers through emails and social media, where they’ll receive information about several resources, such as extended servicer call times.
FSA will also launch an “enhanced” IDR process, which it says will simplify the process for borrowers to enroll in IDR plans, and eliminate the need for borrowers to recertify their income every year. Additional information will be posted on StudentAid.gov next week, according to ED.
This effort and outreach campaign follow the Trump administration’s efforts to dissolve ED, which saw nearly half of its workforce laid off. It’s unclear how this reduction in force could impact ED's ability to resume collections.
The Trump administration also called on FSA’s partners, including financial aid administrators and others in the higher education community, to assist in its campaign to spread the message that “student and parent borrowers – not taxpayers – must repay their student loan.”
“There will not be any mass loan forgiveness,” the press release reads. “Together, these actions will move the federal student loan portfolio back into repayment, which benefits borrowers and taxpayers alike.”
Publication Date: 4/22/2025
Michelle C | 4/22/2025 2:54:09 PM
I contend that all the PPE loans that businesses took out and were "forgiven" be reinstated. As a taxpayer seems only fair -I mean if you want to go there -papers were signed in good faith for that program as well.
Alice B | 4/22/2025 11:12:08 AM
Amen, Anthony! I have yet to understand, especially, why undergraduate loans are not all subsidized! And, James, you are also right. The Biden Administration kept students totally confused as to whether they needed to pay back their loans or not. Now, some have been out of school for almost 5 years. Life has gone on. Some, their lender has changed. It's nothing but a total mess! And now, we, FAA, have to try and locate and communicate this to our students.
James C | 4/22/2025 10:57:40 AM
It's alarming how many borrowers are not attempting to make any payments. The Biden Administration certainly sent the wrong signals to loan borrowers and the pause lasted much too long. For the future I would love to see the fees eliminated and interest capped at 5%.
Anthony S | 4/22/2025 10:49:08 AM
All student loans should be subsidized. Interests rates are killing everyone while lenders are sitting back enjoying the process.
James P | 4/22/2025 8:56:44 AM
Yeah! About time eh? Thank you new administration. Federal student loans are to be paid back as required by the promissory note signed by the student.
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