Ramping Up Student Loan Collections: What You Need to Know
Education Department announces delinquent student loans to be handed over to debt collection agencies.
Heads up, student loan borrowers! The U.S. Department of Education is stepping up its game and resuming collections on defaulted federal student loans, starting May 5, 2025. Here's what you need to know about these new policies:
Collection Resumption
emarking the end of a five-year pause due to the Covid-19 pandemic, the Office of Federal Student Aid (FSA) will once again be on the clock for collecting on defaulted loans.
Treasury Offset Program
If you're in default, get ready for your federal payments to take a hit. This program allows the government to withhold federal payments like tax refunds, Social Security benefits, and other payments from borrowers in default.
Wage Garnishment
Gearing up for summer, the FSA will institute administrative wage garnishment, allowing up to 15% of a borrower's disposable income to be seized directly from their paychecks, starting this summer. This applies only to Direct Loan borrowers in default.
Borrowers should expect an email with information on how to contact the Default Resolution Group to make payments, enroll in income-driven repayment plans, or undergo loan rehabilitation. Over 5 million people have federal student loans in default, with another 4 million teetering on the edge of default.
Reactions to these policies have been mixed. While some see accountability as important for meeting obligations, others express concerns about the financial impact on vulnerable borrowers. Some even argue for broader reforms to reduce student debt burdens and promote more accessible education.
Stay tuned for updates on this exciting new era of student loan collections. It's going to be a wild ride!
[1] www.ed.gov/news/press-releases/education-department-announces-resumption- collections-student-loans-default[2] studentaid.gov/announcements-events/announcements/resumption-default-collection-actions[3] studentloanhero.com/student-loan-debt-statistics/
- Starting May 5, 2025, the U.S. Department of Education will resume collections on defaulted federal student loans, ending a five-year pause due to the Covid-19 pandemic.
- The Treasury Offset Program will allow the government to withhold federal payments from borrowers in default, which includes tax refunds, Social Security benefits, and other payments.
- The Federal Student Aid (FSA) will institute administrative wage garnishment, seizing up to 15% of a borrower's disposable income directly from their paychecks, starting this summer.
- Borrowers in default who have Direct Loans will receive an email with information on how to contact the Default Resolution Group to make payments, enroll in income-driven repayment plans, or undergo loan rehabilitation.
- Over 5 million people have federal student loans in default, with another 4 million teetering on the edge of default.
- Reactions to these policies have been mixed, with concerns expressed about the financial impact on vulnerable borrowers, calls for accountability, and arguments for broader reforms to reduce student debt burdens and promote more accessible education.
