Loan Pause Began Under Trump

During Donald Trump’s presidency, student loan payments were paused to cushion the blow of the COVID-19 pandemic. As businesses shuttered and millions lost their jobs, the pause offered temporary relief to borrowers.

Loan Collections Resume

However, that pause is ending. On Monday, the Education Department announced it will resume involuntary collections on defaulted federal student loans. This move could impact over 5.3 million Americans as early as next month.

Biden’s Forgiveness Plan Blocked

President Biden attempted to cancel a portion of student loan debt. But in 2023, the U.S. Supreme Court struck down his plan. The court ruled that only Congress could approve such action.

Short Notice Alarms Borrowers

One major concern? The notice period. Borrowers only have about two weeks to prepare. Starting May 5, the Treasury Department will begin seizing funds through the offset program. That means tax refunds, federal wages, and other benefits could be withheld to repay past-due loans.

Default and Delinquency on the Rise

According to UNILAD, a loan enters default when no payments are made for nine months. Afterward, the debt can go to collections and hurt credit scores. Currently, less than 40% of borrowers are up to date. An additional 4 million are already behind by 91 to 180 days.

Government Justifies Action

Education Secretary Linda McMahon defended the move.
“American taxpayers will no longer serve as collateral for reckless student loan policies,” she said.
She added that Biden misled borrowers, as the executive branch can’t cancel debt without congressional approval.
Going forward, she said the government will manage loans “according to the law” to protect both individual finances and the broader economy.

Critics Push Back

But not everyone agrees. Natalia Abrams, president of the Student Debt Crisis Center, criticized the decision. She argued the government should help student loan borrowers as it helped investors, automakers, and banks during past bailouts.

Income-Based Repayment at Risk?

Abrams also warned the collections might sidestep the Income-Driven Repayment (IDR) program. IDR lets borrowers repay based on income levels. Although the Education Department is accepting IDR applications, collections will still proceed.

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