Thousands of student-loan borrowers in default could begin losing some of their federal benefits this summer.
On Monday, President Donald Trump’s administration officially restarted involuntary collections on defaulted student-loan borrowers’ debt.
After a five-year pause that began during the early COVID-19 pandemic in Trump’s first term and continued under former President Joe Biden, borrowers in default are once again subject to the harshest consequences of failing to make their payments, which include a seizure of federal benefits like tax refunds and Social Security checks, and eventual wage garnishment.
The Department of Education said that starting on Monday, 195,000 defaulted student-loan borrowers began receiving 30-day notices from the Treasury Department that their federal benefits are subject to withholding through the Treasury Offset Program.
“The first monthly benefit checks subject to offset are those scheduled for early June,” the department said. “Later this summer, all 5.3 million defaulted borrowers will receive a notice from Treasury that their earnings will be subject to administrative wage garnishment.”
Most federal student-loan borrowers enter default when they have not made a payment in over 270 days. The Education Department recommended that borrowers in default contact the Default Resolution Group to make a payment plan or sign up for loan rehabilitation: a lengthy process that requires nine consecutive monthly payments at an amount determined by the servicer.
Preston Cooper, a senior fellow at the conservative think tank American Enterprise Institute, previously told Business Insider that some borrowers might not see the consequences of defaulting right off the bat because the government has to locate them first, which could take time.
“For a lot of those 5 million borrowers, even though the collection system is technically turning back on, they might not see any consequences immediately because the government has to find them first, and it also has to find some income or wages to garnish,” Cooper said.
Some student-loan borrowers in default told BI that they cannot afford the payment restart. James Southern, a 63-year-old borrower, is in default on his student loans and said the projected $1,500 monthly payment is not feasible.
“If they are steadfast on this $1,500 a month, then again, there’s no way I can pay that,” Southern said. “So they’re going to have to come and take it from me, and then I’ve got to figure out somehow how to live past that point.”
The Department of Education also sent a letter to universities on Monday, asking them to help student-loan borrowers and remind students of their resources to pay off debt and avoid default.
“As we begin to help defaulted borrowers back into repayment, we must also fix a broken higher education finance system that has put upward pressure on tuition rates without ensuring that colleges and universities are delivering a high-value degree to students,” Education Secretary Linda McMahon said in a statement.
Are you a student-loan borrower in default or concerned about falling behind? Contact this reporter via email at asheffey@businessinsider.com or Signal at asheffey.97. Use a personal email address and a nonwork device; here’s our guide to sharing information securely.
