The loan repayment push aims to stabilize the $1.6 trillion federal student debt portfolio and reduce taxpayer burdens amid delinquency.
The collection of federal student loans, including wage decorations, resumed within weeks, ending a five-year freeze on April 21st, setting the stage for millions of default borrowers to face new enforcement.
“U.S. taxpayers are not forced to act as collateral for irresponsible student loan policies,” Education Secretary Linda McMahon said in a statement. “The Biden administration misunderstood the borrowers. The administration has no constitutional authority to wipe out debts, and the balance on the loan will not simply disappear. Thousands of billions have already been handed over to taxpayers.”
McMahon was referring to the debt cancellation plan announced by President Joe Biden, which aimed to allow student loans through executive action. These efforts were ultimately blocked by the U.S. Supreme Court in 2023, finding that such measures exceeded the president’s authority without Congress’ approval.
Supporters of Biden’s plan said widespread forgiveness will alleviate economic stress, reduce economic disparities and stimulate the economy. Critics criticized the proposal as illegal, financially irresponsible and unfair to those who have already paid off their debts or have not borrowed them in the first place.
On Monday, the education sector reported that around 5 million borrowers were already defaulted, and another 4 million were late-stage delinquent. Without intervention, officials warned that nearly 10 million Americans could default to default, accounting for nearly 25% of the federal student loan portfolio. Currently, only 38% of borrowers are paying back, and currently on current loans.
To begin enforcement, the Federal Student Aid (FSA) (the department’s loan services division) will resume the Treasury Department’s offset program on May 5th. This allows the federal government to collect expired student debt by blocking tax refunds, wage cuts and withholding Social Security benefits.
Administrative wage decorations will begin later this summer following the legally necessary notice period. The department also allows guarantee agencies to resume unwilling collection activities regarding default loans issued through the now-repeated federal family education loan program.
“From now on, the Ministry of Education will work with the Ministry of Finance to responsibly protect the student loan program and to follow the law to help borrowers pay off their financial health and the national economic outlook,” McMahon said.
The return of the collection comes as the education sector undergoes a major overhaul.
Despite the shrinking, McMahon said the department remains committed to supporting struggling borrowers. The FSA will soon launch a nationwide outreach campaign that includes email, social media and call centre opening hours to help borrowers understand their options. Several IDR plans have been reopened, including income-based repayments (IBR), earning earnings (PAYE), and income organization repayments (ICR).
The education department said there was no further attempt to forgive the Blanket students’ debts.
“Federal student loans are funded by Americans,” the department said in its release Monday. “Instead of protecting responsible taxpayers, the Biden Harris administration has placed them on hook for irresponsible loans and pushed their federal student loan portfolio towards the fiscal cliff.”
The original freeze on student loan payments and interest was launched by Trump in March 2020. The suspension of payments officially ended in September 2023, but the Biden administration has introduced a one-year “on-ramp” period that protects delinquent borrowers from defaults, collections and negative credit reporting while interest arose.
By the end of that transition period, the New York Fed estimated that historical student loan volume had reached a record 15.6%, exceeding $250 billion in arrears debt held by 9.7 million borrowers in total.
Reuters contributed to this report.
