President Donald Trump is reviving a program that withholds federal benefits like tax refunds and Social Security from student-loan borrowers in default.
Trump’s Department of Education announced on Monday that it will resume collections on defaulted borrowers beginning on May 5. Since March 2020, the department has not collected on defaulted student loans or enforced the consequences of defaulting as part of its pandemic relief measures.
Education Secretary Linda McMahon said that the relief is over, and borrowers need to make on-time payments or face the consequences. Those include harm to their credit scores and having federal benefits withheld.
“Going forward, the Department of Education, in conjunction with the Department of Treasury, will shepherd the student loan program 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,” McMahon said in a statement.
Federal Student Aid will enforce this by working with the Treasury Department to restart the Treasury Offset Program, which allows the government to collect tax refunds and certain federal benefits, like Social Security, until the student-loan borrower makes their payment.
Here’s what borrowers should know about the program.
What student-loan borrowers in default can expect in the collections process
The Education Department said that over the next two weeks, it will send emails to defaulted borrowers with options to make plans to get out of default before involuntary collections begin.
After that, the Treasury Department will once again begin administering the Treasury Offset Program. Most federal student-loan borrowers enter default if they have not made a payment for over 270 days. At that point, the borrower would be sent to the offset program, which would collect the overdue debt by holding back, or offsetting, money from a federal payment to a debtor.
A Treasury fact sheet said that up to 100% of a federal tax refund, up to 15% of a federal salary, and up to 15% of a borrower’s Social Security benefits could be withheld.
The Education Department also wrote in its press release that “later this summer, FSA will send required notices beginning administrative wage garnishment.”
One option to exit default is loan rehabilitation. To start rehabilitation, borrowers have to contact their loan servicer, and they must agree in writing to make nine voluntary payments during a period of 10 consecutive months within 20 days of the due date. During this time, though, involuntary payments through the Treasury Offset Program might continue until the loan is no longer in default or the borrower has made at least five rehabilitation payments.
Five million student-loan borrowers have not made a payment in over 360 days, and an additional 4 million borrowers are in late-stage delinquency, having not made a payment for 91-180 days, per the Education Department.
That means millions of borrowers are at risk of soon facing the consequences of defaulting, and the implications are more widespread than the withholding of benefits; a drop in credit score would also make it difficult for borrowers to get approval to rent or buy homes.
Some advocates criticized the Trump administration’s move to restart collections on defaulted student loans. Mike Pierce, executive director of advocacy group Student Borrower Protection Center, said in a statement that the move is “cruel, unnecessary, and will further fan the flames of economic chaos for working families across this country.”
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.
