Trump administration restarts involuntary collections on student loan debt

The Department of Education resumed collections on defaulted federal student loans on Monday and reminded colleges and universities of their “shared responsibility” to ensure taxpayers aren’t on the hook for unpaid debts.

Collections had been on pause since March 2020, as a result of the COVID-19 pandemic, and the restart is expected to impact roughly 5.3 million borrowers currently in default on their federal student loans.

“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. 

“For too long, insufficient transparency and accountability structures have allowed US universities to saddle students with enormous debt loads without paying enough attention to whether their own graduates are truly prepared to succeed in the labor market,” she added. 

On Monday, approximately 195,000 defaulted student loan borrowers received a 30-day notice from the Department of Treasury, informing them that their federal benefits will be subjected to the Treasury Offset Program, which collects debts by garnishing federal and state payments, such as federal tax refunds. 

Offsets will begin in early June, according to the Education Department, and 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. 

On the same day collections resumed, McMahon issued a “Dear Colleague Letter” to institutions of higher education reminding them of their obligation to support student loan borrowers under the Higher Education Act of 1965. 

“Although borrowers have the primary responsibility for repaying their student loans, institutions play a key role in the Department’s ongoing efforts to improve loan repayment outcomes, especially as the cost of college set solely by institutions has continued to skyrocket,” McMahon wrote. 

The education secretary asked universities to “refocus and expand” efforts at advising and counseling students on borrowing money from the federal government and to provide “clear and accurate information about repayment to borrowers through entrance and exit counseling.” 

McMahon noted that under the Higher Education Act, schools are required to keep default rates “low” and warned that schools could “lose eligibility for federal student assistance” if defaults exceed 40% in a single year or 30% for three straight years. 

“[W]e strongly urge all institutions to begin proactive and sustained outreach to former students who are delinquent or in default on their loans to ensure that such institutions will not face high [default rates] next year and lose access to federal student aid,” McMahon wrote. 

The Trump administration also warned colleges that the Education Department will soon begin publishing loan non-payment rates broken down by university.

“The Department is committed to overseeing the federal student loan programs with fairness and integrity for students, institutions, and taxpayers,” McMahon wrote. “To that end, the Department believes that greater transparency is needed regarding institutional success in counseling borrowers and helping them get into good standing on their loans.” 

She indicated that the data will be made public later this month.