On May 5, the federal government will resume collections on defaulted student loans after a prolonged pause due to the pandemic. This follows an administrative forbearance initiated by former President Joe Biden in March 2020, which halted payments and set interest rates to 0%, scheduled to end on September 1, 2023. Although President Biden extended the pause multiple times, the Trump administration had announced that collections would start again effective May 5.
Currently, only 38% of federal borrowers are caught up on their student loans, with approximately 42.7 million borrowers collectively owing over $1.6 trillion. On the resumption date, the Treasury Offset Program will also restart, allowing the government to withhold federal payments owed to individuals with past-due debts.
Defaulted loans occur when borrowers have failed to make payments, leading to delinquency, which can negatively impact credit scores. Deferments may be available for specific situations, such as enrollment in school or economic hardship, although they don’t contribute towards loan forgiveness.
For federal loans, declaring bankruptcy may lead to cancellation, but borrowers must file an adversary proceeding to demonstrate undue hardship. Private lenders operate differently, potentially collecting payments directly or selling off debts, with no legal requirement to offer “get out of default” programs.
To navigate repayment, borrowers can utilize resources like the online loan simulator at www.studentaid.gov, exploring options such as income-driven repayment plans that adapt based on income levels. The Department of Education will notify borrowers about resuming payments and available options in the upcoming weeks.
