The department claims that resuming collections is crucial to prevent American taxpayers from bearing the cost of federal student loans that borrowers willingly took on to finance their postsecondary education. Despite Congress mandating that student and parent borrowers resume repayment in October 2023, the previous Biden - Harris administration refused to lift the collections pause, leaving borrowers in a state of uncertainty.
The figures related to student debt in the U.S. are staggering. Currently, 42.7 million borrowers owe over $1.6 trillion in student debt. More than 5 million borrowers have not made a monthly payment in over 360 days and are in default, and 4 million borrowers are in late - stage delinquency (91 - 180 days). As a result, in a few months, there could be nearly 10 million borrowers in default, which would mean almost 25 percent of the federal student loan portfolio is in default. Only 38 percent of borrowers are in repayment and current on their student loans.
To restart the collections process, the FSA will initiate the Treasury Offset Program, administered by the U.S. Department of the Treasury, on May 5th. This program will intercept payments such as tax refunds and government benefits to collect outstanding debts. Later this summer, the department will also start garnishing the wages of borrowers in default.
For borrowers, this restart means they need to be more vigilant about their repayment status. The department urges defaulted borrowers to contact the Default Resolution Group within the FSA. Borrowers can make a monthly payment, enroll in an income - driven repayment plan, or sign up for loan rehabilitation.
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This restart of student loan default collections is likely to have a significant impact on borrowers and the economy at large. It remains to be seen how borrowers will respond and whether the department's efforts to restart collections will be successful in getting the federal student loan portfolio back on track.
