Department of Education to resume collections on defaulted federal student loans

RALEIGH, N.C. (WTVD) -- The Department of Education announced it will resume defaulted federal student loan collections beginning May 5th.

"This could not come at a worse time," said Khandice Lofton, Counsel with the Student Borrower Protection Center.

According to the Department of Education, 42.7 million borrowers owe more than $1.6 trillion in student debt. Of that group, more than 5 million borrowers have not made a monthly payment in over 360 days are in default, and 4 million borrowers are in late-stage delinquency, meaning a payment has not been made in 91-180 days.

"American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies," said U.S. Secretary of Education Linda McMahon 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."

"I think it's important that students do repay their student loans. They were always intended to be loans rather than grants, so I am supportive of us getting away from the pandemic policies and back towards more normal student loan repayment," explained Jenna Robinson, President of The James G. Martin Center for Academic Renewal.

Student loan payments have been paused since March 2020 due to the COVID-19 pandemic.

"The original pause was never targeted to the people who needed it most. It was a universal pause," said Robinson.

Over the next two weeks, the Department of Education will reach out to borrowers in default, directing them to contact the Default Resolution Group to make a monthly payment, enroll in an income-driven repayment plan, or sign up for loan rehabilitation. Later this summer, it will send notices to start wage garnishment.

"Borrowers trying to already pay for groceries, rent and afford the ability to live. And with this coming upon them now, it's even more of a struggle. And so they are scared. They fear what this could mean for them and their finances. Before the pandemic, one in five borrowers were in default and a borrower was defaulting every 26 seconds. So who knows how catastrophic this could be," said Johnson.

"If they start garnishing the wages of five million people, that's going to be a negative impact on the economy. And you're going to see an even further contraction of the economy," added Melissa Byrne, founder of the advocacy group We The 45 Million.

Byrne was previously in default of her student loans.

"I still do have student loan debt. And when I took out debt, there was a lot of shame around student loan debt. You weren't supposed to talk about it. It was seen as like your family had failed if they couldn't write a check for your college. And when you started repayment, there wasn't support for how to navigate all the company fees that were involved and touchpoints. I just kind of dealt with it alone and ended up in default," said Byrne, whose experience motivated her to start the group.

She now supports policies including cancellation of student debt and free public college, pointing to ongoing efforts in New Mexico and Minnesota.

"Imagine the person that, if they had their education, would cure one of the forms of cancer. But they're denied education because they don't have a rich parent," Byrne explained.

Byrne dismissed assertions by the Trump administration that the move is meant to protect taxpayers.

"They have no problem setting up a reconciliation process. It's going to be tax cuts to the richest Americans by likely cutting Medicaid, cutting Medicare, cutting higher education funding," said Byrne.

Robinson applauded the UNC System for instituting tuition freezes, believing it will help make college more attainable for students.

"I think that students and parents should be looking at those returns on investment when they decide when and how much to borrow. For some degrees, it absolutely makes sense to borrow because you're going to get that return, for others, you're never going to be able to repay. And students should take that into account when they're choosing a major, when they're choosing a university. I think the other thing that needs to happen is that universities need to have skin in the game. They need to be on the hook for some portion of the money when students default, which would give universities better incentives to get students graduated, get them into majors that will pay off and make sure that they don't take on levels of debt that they can't handle," Robinson explained.