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By Suzanne Blake
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The U.S. Department of Education is preparing two major changes in May, including an aggressive policy for collecting on unpaid loans and resuming applications for payment plans that could reduce monthly payments for some borrowers.
Why It Matters
Of the more than 40 million Americans with student loan debt, roughly 5 million are already in default, and an additional 4 million are at least three months behind on payments, according to the U.S. Department of Education (DOE).
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Without intervention, the agency estimates that nearly 10 million borrowers could be in default within months, pushing nearly a quarter of all federal student loans into collection.
The shift, reinstated under the Trump administration, comes amid heightened scrutiny over student debt relief policies and concerns about growing delinquency rates.
Education Secretary Linda McMahon framed the decision as a return to fiscal discipline, arguing that, "American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies."
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What To Know
The Trump administration is changing plans for collecting on student loans, which has been paused since March 2020, when the COVID-19 pandemic hit. The administration may also resume applications for the income-driven repayment programs (IDR) beginning in May.
IDR plans have become popular because they allow borrowers to pay back their loans based on what they can afford given their monthly income. Some IDR plans also have paths for forgiveness for borrowers who make timely payments for years.
Changes To Student Loans
Starting May 5, the government will begin garnishing wages and withholding tax refunds from borrowers who are in default. Under the Treasury Offset Program, the government can seize tax refunds, federal salaries, and other benefits to recoup debts. After a 30-day warning period, the DOE will also resume garnishing up to 15 percent of wages for those in default.
Along with resuming collections, the DOE will launch an enhanced IDR process to simplify enrollment.
Beginning May 10, the DOE plans to resume applications for IDR plans, according to court filings. The DOE confirmed that spousal income will not be considered when calculating payments under IDR plans. The clarification could lower payments for many married borrowers who previously saw higher monthly obligations due to household income.
How Do I Know If My Student Loans Are in Default?
A federal student loan is considered in default after 270 days of non-payment. Borrowers can check their loan status by logging into their account at StudentAid.gov, where they can also access repayment tools and contact the Default Resolution Group.
How Many People Have Missed Student Loan Payments?
Fewer than 40 percent of student loan borrowers are currently up to date on payments. Millions are either in forbearance, deferment, or behind on payments.
The restart of collections is expected to disproportionately impact working-class borrowers already navigating post-pandemic financial instability.
What Happens If Your Student Loans Are in Default?
If your loan is in default, the DOE may initiate garnishments and offsets. Borrowers will receive advance notice and can still avoid collections by enrolling in repayment plans or pursuing loan rehabilitation.
What Is The SAVE Plan?
The Saving on a Valuable Education (SAVE) plan, an IDR student loan plan, was introduced under the Biden administration to calculate payments based on income and family size. The plan was blocked by courts, but the DOE could resume offering other IDR plans for borrowers.
Tips to Minimize Student Loan Debt
If you've missed payments but haven't yet defaulted, now is the time to contact your loan servicer or the Default Resolution Group. Acting before the May 5 deadline may help avoid wage garnishment or withheld tax refunds. You may also qualify for an income-driven repayment (IDR) plan or loan rehabilitation program, both of which can restore your loan to good standing.
The DOE is encouraging borrowers to take advantage of tools like the enhanced Loan Simulator and the AI assistant "Aiden," both available at StudentAid.gov. These tools help estimate monthly payments based on income and family size and can guide borrowers in selecting the repayment plan best suited to their financial situation.
If you're already in default, two federal options can help. Loan rehabilitation allows you to remove the default from your record after making nine agreed-upon payments. Loan consolidation allows you to pay off the defaulted loan with a new loan, which immediately returns you to good standing. These options are explained in more detail at StudentAid.gov/end-default, where borrowers can find eligibility criteria and application steps.
The DOE has stressed that all legitimate repayment, rehabilitation, and forgiveness options are available for free at StudentAid.gov. If you receive a call or message asking for payment in exchange for help managing your loans, it's likely a scam.
What People Are Saying
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. 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."
Alex Beene, financial literacy instructor for the University of Tennessee at Martin, told Newsweek: "For many student loan borrowers, the past few years provided a plethora of forgiveness and payment plans to ease the repayment process. However, with a new administration comes new policy, and if you've defaulted on your loan balance by not making a payment in more than 360 days or in delinquency by not making a payment for the last 91 days, the crackdown on repayments is about to begin."
What Happens Next
Borrowers in default will begin receiving notices by email within two weeks and must take action immediately avoid many of the financial penalties. Wage garnishment notices will follow this summer.
"You need to start making plans immediately to begin making payments or you'll risk having your wages garnished later this year," Beene said. "It may not be the desired outcome for many, but it's the new reality for millions of borrowers."
McMahon has reiterated that broad student loan forgiveness is not in the cards.
"There will not be any mass loan forgiveness," said the department's announcement.
Instead, the administration aims to restore "commonsense and fairness" by ensuring borrowers fulfill their repayment obligations.
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