The Education Department has officially suspended certain collections efforts for student loans, giving borrowers some breathing room and a bit of good news amid widespread uncertainty and disruptions to student loan programs. The department indicated that efforts to pursue defaulted borrowers would be paused while the government continues to implement systemwide updates and changes to repayment and loan forgiveness programs.
“After the Biden Administration misled borrowers into believing their student loans would not need to be repaid, the Trump Administration is committed to helping student and parent borrowers resume regular, on-time repayment, with more clear and affordable options, which will support a stronger financial future for borrowers and enhance the long-term health of the federal student loan portfolio,” said Under Secretary of Education Nicholas Kent in an announcement last week. “The Department determined that involuntary collection efforts such as Administrative Wage Garnishment and the Treasury Offset Program will function more efficiently and fairly after the Trump Administration implements significant improvements to our broken student loan system.”
Here’s what student loan borrowers should know, and what the collections pause means.
Involuntary Collections Halted For Defaulted Federal Student Loans
The Education Department’s announcement last week pertains specifically to involuntary collections efforts against borrowers in default on their federal student loans. The government has vast powers to pursue defaulted borrowers without the need to go through the court system or obtain a judgment. Using “administrative” powers, the department can garnish wages and refer borrowers to the Treasury Offset program, which facilitates the interception of federal tax refunds and the seizure or offset of other federal income and benefits.
The department had already begun referring borrowers to the Treasury Offset program, and this would have been the first full tax season in years in which borrowers would have been subject to tax refund seizures (collections on defaulted student loans had been paused for years due to pandemic-era relief programs). And earlier this month, the department had announced that the first batch of administrative wage garnishment notices would be sent out to borrowers’ employers. But last week’s announcement indicates that these efforts are being halted.
Not All Student Loans Are Covered By The Suspension
For now, it appears that only defaulted federal student loans held by the U.S. Department of Education are definitively covered by the pause on collections efforts. Other types of student loans are not covered. These include federal student loans that are not in default (including those in regular repayment or in a delinquency status), which still must be repaid in accordance with a borrower’s repayment obligations; and private student loans, which are not subject to such directives from the Education Department, regardless of whether or not they are in default.
It is not entirely clear at this juncture whether defaulted FFEL-program student loans held by guaranty agencies are subject to the pause on involuntary collections. The FFEL program is an older loan program where a private lender originally issued the student loan, and that lender was then backed or insured by an entity called a guaranty agency in the event of default. The guaranty agency can ultimately assign or transfer the debt to the federal government. Last week’s announcement did not specify whether defaulted FFEL-program student loans held by guaranty agencies are covered by the suspension of involuntary collections.
Suspension Of Collections On Student Loans Is Only Temporary
Advocacy groups for student loan borrowers praised the Education Department’s announcement, but warned that the relief is a delay, not a permanent cessation of collections efforts for defaulted federal student loans.
“The announcement means that borrowers should be protected from losing their tax refunds this tax season as a result of student debt; it also means that borrowers should be temporarily protected from losing a portion of their wages due to federal student loan default,” said the National Consumer Law Center in a statement last week. “The Department did not specify when it will resume default collections or how long the delay will last.”
“While this is a welcome first step, this is only a temporary pause,” said Natalia Abrams, President and Founder of the Student Debt Crisis Center in a statement. “The Department of Education must offer comprehensive student loan debt relief, and agree to stop all collections practices moving forward. No one should ever face the possibility of having their hard-earned wages or tax refunds taken away from them.”
Education Department Is Working To Implement Changes For Student Loans
The Education Department explained that its decision to suspend involuntary collections actions against borrowers in default on their federal student loans was related to efforts to implement massive new changes to federal student loan forgiveness and repayment programs under legislation that Congress passed last summer.
“The temporary delay will enable the Department to implement major student loan repayment reforms under the Working Families Tax Cuts Act (the Act) to give borrowers more options to repay their loans,” said the department in its statement last week. “These reforms, which include simplifying repayment options and providing an additional opportunity for borrowers to rehabilitate their federal student loans, reflect the Trump Administration’s commitment to provide better support for current and future borrowers in repayment.”
But some advocacy groups suggested that the delay may also be due to ongoing administrative challenges facing the department as it contends with ongoing backlogs and delays for borrowers applying to income-driven repayment and student loan forgiveness programs. Some organizations have suggested that the department is not well-positioned to implement the recent legislative reforms, including the creation of a new income-driven repayment plan called the Repayment Assistance Plan, or RAP.
“Clearly the Department of Education has reassessed its slim administrative capacities and disastrous political agenda and decided taking the last few pennies student debtors have in their bank accounts is cruel and untenable,” said Braxton Brewington, spokesperson for the Debt Collective, a union of debtors, in a statement last week. “Instead of punishing student debtors — many of whom are low-income and burdened by other rising costs like health care and utilities— the Department of Education should use its whatever resources it has at its disposal to hold failed student loan servicers accountable for the errors they’ve made on debtors’ accounts or go after predatory schools taking advantage of single mothers and veterans.”
“ED is not well prepared to smoothly transition borrowers into other plans,” warned The Institute For College Access And Success in a blog post last month. “ED has also not completed the process of implementing the new income-based plan created in OBBBA, the Repayment Assistance Plan (RAP). They have not yet completed the final rulemaking process nor built out their systems to enable borrowers to apply for enrollment.”
Defaulted Federal Student Loans Can Be Resolved
Regardless of the reasons for the Education Department’s announcement, borrowers in default on their federal student loans now have some more time to potentially resolve their situation before the government resumes involuntary collections efforts again.
“For now, borrowers can use the time offered by the delay in collections to take stock of their student loan situation,” said the National Consumer Law Center in a statement. “Borrowers in default can take action to get out of default before collection resumes. And borrowers who have fallen behind on their loans but are not yet in default can take actions to prevent default.”
Defaulted student loans can be eligible for loan rehabilitation or Direct loan consolidation, both of which can restore the loans to good standing so that borrowers can access income-driven repayment plans and eventual student loan forgiveness. Borrowers can also explore administrative discharge options such as the Total and Permanent Disability discharge program or Borrower Defense to Repayment, depending on eligiblity. Borrowers should carefully review their options and the possible benefits and drawbacks of any particular course of action.
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