Did you take a US student loan and go into default? Education Department is coming to collect the debt from your salaries
US student loan defaulters beware! The Department of Education will start the process of collecting student loans that had gone into default. World
US student loan defaulters beware! The Department of Education will start the process of collecting student loans that had gone into default. This could include forcing the defaulters to part with a portion of their salaries. The move can affect millions, according to multiple American media reports.
“American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies,” Education Secretary Linda McMahon said on Monday (Apr 21), revealing the direction her department will go in order to take back the money.
“Going forward, the Department of Education, in conjunction with the Department of Treasury, will shepherd the student loan programme 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,” she said.
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How many US student loans are in default?
At least 5.3 million people who have borrowed money for education are in default on their federal student loans in the US, according to a report in the Associated Press news agency.
What does student loan collections mean?
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So far, the US government has been lenient towards student loan defaulters, with the pressure to repay eased, particularly since the Covid pandemic. Since March 2020, when COVID-19 was declared a global pandemic, student loans have not been referred for collection.
President Donald Trump's predecessor Joe Biden had attempted student loan forgiveness, but the moves were blocked by courts.
What will the US education department do to student loan defaulters?
According to reports, the US education department will start 'involuntary' collection of loans from May 5.
This will be done through the US Treasury Department's offset programme, and would involve withholding of government payments.
These payments include tax refunds, salaries and other benefits to federal employees who had taken loans as students.
Garnishing of wages: the method US govt might use to get back loans
The reports said that one of the ways in which the student loans will be recovered is through the process known as 'garnishing of wages'. In this, part of the salary of an individual is withheld by the employer under court orders to settle debts.
The education department will start garninshing wages of the debtors after a 30-day notice.
How bad is the student loan situation in the US?
According to data collected by various organisations, the federal student loan debt is estimated to be around a whopping $86 billion.
In fact, it is far better than the peak debt default figure in 2018, when it stood at $128 bn.
As of 2021, nearly 5.47 per cent of all student loan debt was in default.
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The Biden administration introduced the Fresh Start Program in 2022, aimed at bringing student loan borrowers out of default. The education department under Biden allowed the borrowers to apply for federal student aid in order to complete their degree. That programme ended in 2024.
The previous Trump administration introduced a student loan payment moratorium in 2020.
That moratorium was extended several times by Biden, but ended in 2023, and payments became due with interest in 2023. The grace period ended in 2024.
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Several people, such as Mike Pierce, the executive director of the Student Borrower Protection Center, criticised the planned move of the education department to collect student loans as 'cruel and unnecessary.
“This will further fan the flames of economic chaos for working families across this country,” Pierce said, as quoted by AP.
How bad is the US student loan default situation?
An individual is considered to be in default if the loan or interest is not paid for nine months.
Defaulting on loans will adversely affect their credit scores.
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Besides defaulters, up to 4 million loan takers are late on payments by up to 180 days.
According to education department data, less than 40 per cent of loan takers are paying back their loans in time.
