Education Department to start debt collection on student loans next month

WASHINGTON (NEXSTAR) - Advocates warn that millions of student loan borrowers could be in big financial trouble when a new Trump administration policy takes effect. Starting on May 5th the Education Department plans to resume sending student loans that are in default to collections. 

“The government can and will collect defaulted federal student loan debt by withholding money from borrowers' tax refunds, federal pensions, and even their wages,” White House press secretary Karoline Leavitt said. 

Collection referrals have been on hold since 2020, when the government paused student loan payments during the pandemic. Now the White House says less than 40% of borrowers are up to date on repaying their loans. 

"Unsustainable, unfair, and a huge liability for American taxpayers. Debt cannot be wiped away. It just ends up getting transferred to others,” Leavitt said. 

Advocates say they’re worried about the impact this could have on the more than five million borrowers who are currently in default on their loans. 

Khandice Lofton is counsel for the Student Borrower Protection Center. She says this change could have devastating financial consequences. 

"Borrowers are already struggling with rising costs in the economy: groceries, rent, childcare. This just couldn't come at a worse time,” Lofton said. 

She says this will hit lower income people especially hard. Particularly at a time when the Trump administration is rolling back income driven repayment programs that the Biden administration implemented to lower some borrowers’ monthly payments.

 "Borrowers want to pay their loans back, but they have a right to afford to do so. And in these challenging times instead of helping borrowers do that, the Trump Administration is choosing to penalize them for falling behind,” Lofton said.

Michele Zampini is the Senior Director of College Affordability for The Institute for College Access and Success. She points out the Education Department just made major staff cuts, which she says means less help for borrowers try to get themselves out of default.  

"Their ability to navigate that system is really compromised because of the actions of this administration, Zampini said. 

She argues the student loan system is broken and says borrowers need resources when they fall behind, rather than punishment. 

"As long as the system is chaotic and dysfunctional it's really, really difficult for individuals to do their part and to uphold their end of the bargain,” Zampini said.