Education Department to restart collections of defaulted student loans

Federal financiers will resume collecting past-due student loan payments beginning next month, according to a Monday statement from the Department of Education. The department planned to authorize guaranty agencies to restart involuntary collection tactics later this summer, such as garnishing borrowers' wages. Borrowers need to pay back their loans because there will be no mass forgiveness, the department insisted. The Office of Federal Student Aid planned to enlist help from states, colleges, and other stakeholders to restore the commonsense policy of borrowers, not taxpayers, repaying student loans, the statement added.

Over 42 million borrowers owe over $1.6 trillion in student debt, and less than 40% of borrowers are repaying their loans, according to the DOE. Over 5 million student loan borrowers have not made a monthly payment in over a year, with about 4 million others having not made payments for months. At this rate, nearly 25% of the federal student loan portfolio could be in default in a matter of months, the DOE noted. The department has not processed any repayment plan applications since last August, the statement added.

Why has paying back student loans come to a halt? Student loan repayment stalled during former President Joe Biden’s COVID-19 collections pause, which was extended a number of times. Borrowers also held off on paying back loans amid continued promises from the Biden administration that taxpayer dollars would be used to pay off student loans en masse, despite the Supreme Court ruling Biden’s plan illegal. The Biden administration misled borrowers into thinking it had constitutional authority to wipe debt away, Secretary of Education Linda McMahon said. The DOE planned to work with the Treasury Department to restart payments for the sake of America’s economic outlook and the financial well-being of the borrowers, she added.

Dig deeper: Read Josh Schumacher’s report on the Supreme Court blocking Biden’s plan to pay off student loans using taxpayer dollars.