The Department of Education (DoEd) is gearing up to restart involuntary debt collection for its defaulted federal student loan portfolio after pausing collection during the COVID-19 pandemic, the department announced Monday.
The Office of Federal Student Aid (FSA) will officially resume collections of its defaulted federal student loan portfolio on May 5 — until then, borrowers in default will receive emails from FSA making them aware of the change and offering information and assistance. By summer, FSA will send notices before beginning administrative wage garnishment, according to DoE.
DoEd noted that it has not collected on defaulted loans since March of 2020, and while Congress mandated borrower repayment in Oct. 2023, the agency said the Biden-Harris administration “refused to lift the collections pause and kept borrowers in a confusing limbo.” DoEd also accused the Biden-Harris administration of failing to process applications for borrowers who applied for income-driven repayment and “continued to push misguided ‘on-ramps’ and illegal loan forgiveness schemes to win points with borrowers and mask rising delinquency and default rates.”
“American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies,” U.S. Secretary of Education Linda McMahon said in a statement.
“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 continued. “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.”
In a media call ahead of the DoEd’s announcement, a senior department official said the federal student loan portfolio “is headed toward a fiscal cliff if we don’t start repayment and collections.”
In its official announcement, the DoEd pointed to the more than 42.7 million borrowers who own more than $1.6 trillion in student debt. According to the department, more than 5 million borrowers have not made a monthly payment in over 360 days and sit in default, many for more than 7 years. Four million borrowers are in late-stage delinquency, which is 91-180 days.
“As a result, there could be almost 10 million borrowers in default in a few months. When this happens, almost 25 percent of the federal student loan portfolio will be in default,” the DoEd assessed.
The department said only 38 percent of borrowers are in repayment and are current on their student loans. Most of the remaining borrowers are either delinquent on their payments, in an interest-free forbearance, or in an interest-free deferment, according to DoEd. A small percentage of borrowers are in a 6-month grace period or in-school.
Almost 1.9 million borrowers “have been unable to even begin repayment because of a processing pause put in place by the previous administration,” DoEd said, noting that it is currently working with federal student loan servicers and hopes to begin processing next month.
“The current administration believes that American taxpayers can no longer serve as collateral for student loans,” the senior department official said. “Student loan debt must be paid back.”
“And then, going forward, we totally believe that Congress has a role to play in fixing the higher education system that puts students in a position where they can afford their loan payments,” the official added. “So we’re looking forward to working with Congress on their efforts to streamline loan repayment, as well as lowering college costs.”
A senior department official told media that the effort will involve a “robust communication strategy” and partnerships with states, colleges and universities to educate borrowers on expectations and the repayment process.
The communication strategy includes outreach to borrowers through emails and social media, resources like a new Loan Simulator, an AI Assistant named “Aiden,” and extended servicers call time, according to the department. FSA is also working to streamline the time it takes for borrowers to enroll in Income-Driven Repayment (IDR) plans, and more information will be posted here next week.
Katherine Hamilton is a political reporter for Breitbart News. You can follow her on X @thekat_hamilton.
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