Major alert for defaulted student loans: A new policy shift impacts more than 5 million people

Payments on student loans were paused during Donald Trump’s first presidency in response to the COVID-19 pandemic when a huge number of businesses closed and triggered massive job losses.

However, the Education Department announced Monday it will resume involuntary repayment of federal student loans that are in default.

They expect this decision to affect over 5.3 million people starting as soon as next month.

During Biden’s presidency, he sought to offer forgiveness of the loans but faced opposition from the courts. In 2023, the U.S. Supreme Court ruled his plan to forgive the loans as unconstitutional due to lack of congressional approval.

The main issue with the decision by the Education Department is the short notice borrowers will receive, with only two weeks’ time to prepare.

“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,” the Education Department announced.

According to UNILAND, “Loans go into default when borrowers do not make payments for nine months.” Once they report this on the credit scores, it can go to collections.

At the time being, less than 40 percent of student loan borrowers are up to date on their loans.

The rest makes the borrowers in default and additional 4 million borrowers who are 91 to 180 days late on their loan payments.

“American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies,” Education Secretary Linda McMahon said.

“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.”

“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.”

BRENDAN SMIALOWSKI/AFP via Getty Images

Natalia Abrams, the president of the Student Debt Crisis Center believes the government should intervene and help those who have student loans the way it assisted investors, banks, and automakers during past “bailouts.”

Further, she argued that the Department of Education’s move against borrowers in default might bypass a federal program called Income-Driven Repayment. This program allows borrowers to make payments based on their income. At the time the Department of Education released their decision on resuming involuntary repayment of federal student loans, the program received and processed applications.

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Monica Pop
Monica Pop
Monica Pop is a senior writer for Bored Daddy magazine covering the latest trending and popular articles across the United States and around the world.

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