If you are one of the 42.7 million Americans with student loans, you probably heard the news already.
Starting May 5, the Office of Federal Student Aid will resume collecting debts for the first time in five years.
Folks who have fallen behind on multiple payments, meaning their loan is in default, will be at risk of “involuntary collections,” which is basically when the government forcefully takes money from individuals to pay their loan. It can take these funds out of tax refunds, social security and benefit checks, and even directly from wages.
In total, five million people are currently in student loan default. As collections start up again, that number will likely grow to roughly 10 million, according to the U.S. Department of Education.
The Trump administration’s choice of timing to make the rubber meet the road for struggling borrowers flies in the face of the president’s now-stale economic relief message, which he heavily leaned on during the campaign trail. It also coincides with the reduction of nearly half the DOE’s workforce, including key staff who operate the federal student loan apparatus.
These decisions will acutely harm communities of color, given that Black and Brown borrowers carry the majority of student debt stress in the United States, per the Legal Defense Fund. This disparity is deeply linked to the overarching racial wealth gap, the Student Borrower Protection Center found.
Women will also be disproportionately impacted, as they hold almost two-thirds of the nation’s student debt, The 19th reported.
As anyone with student loans knows, the worsening debt crisis became only more dysfunctional these last few years.
The pandemic is what originally paused loan collections, and the inevitable restart was repeatedly kicked down the road as the Biden administration made a flurry of attempts to forgive student debt.
Some of those efforts were successful, but the mass forgiveness plan was eventually rejected by the Supreme Court. The Biden-era payment reform, known as SAVE, is also being challenged in the courts while about 8 million enrollees wait in limbo.
All told, it’s been such a long rollercoaster that some borrowers falsely believe their loans are nixed by a statute of limitations, NPR reported.
While most loans were paused for the bulk of the past five years, they were moved out of the pandemic-driven “forbearance” period in September 2023. That meant interest could accrue again, and payments resumed. Now, it’s debt collection that is resuming.
Secretary of Education Linda McMahon defended the decision, arguing in a Wall Street Journal op-ed that it will restore order to the situation and pay back taxpayers what they are owed.
However, as borrowers know all too well, the student loan system was badly missing both order and fairness way before the pandemic.
Federal loans may offer better deals than private lenders, which are known to trap borrowers in predatory, high-interest plans, but they are still part of what experts agree is a broken system. Students are allowed to take out massive loans to cover sky-high tuition costs, and schools are incentivized to let them. Meanwhile, bachelor’s degrees are still a barrier of entry to the job market, yet their value and entry-level salaries are not keeping pace, according to the Education Data Initiative.
Now, the Trump administration is flipping this system’s power switch back on, in an effort to push people out of grace periods and into repayment as swiftly as possible.
Indeed, borrowers were only given a few weeks of notice, which is not enough for many to prepare for what could be hundreds of dollars in extra monthly bills, Guelita Gee, an accountant and personal finance advisor, explained on TikTok.
Despite all this, there are ways to get through unscathed, even if you do have a loan in default or delinquency. Start thinking about these tips and tricks now, and you could avoid any run-ins with the FSA.
- Get new repayment terms. Also known as loan consolidation, this can get your loan out of default and help you avoid involuntary collections. Keep in mind that the default will stay on your credit report, and that this option goes away if collections on your loan are underway.
- Pursue a rehabilitation agreement. This takes longer than getting new repayment terms, but it can get you out of involuntary collections, whether they have begun or not. It also eventually wipes the default from your credit report.
- Request a hearing. You can try to fight involuntary collections. To get a hearing, you usually have to respond within 30 days of being notified.
- Consider going back to school. If you are enrolled in at least six credits of classes, any loans will be automatically deferred. A few community college courses could be cheaper than your monthly loan payments, educator Dr. Chelsia Potts explained. There are also more types of deferment, including for certain economic and family circumstances.
- Seek trusted guidance. There are plenty of scams out there, so watch out for any services requesting additional money to lower your debt. There is also real support out there to help you through this process. The National Consumer Law Center’s Student Loan toolkit and the FSA’s loan calculator are good places to start.
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