The bill is coming due for student loan borrowers that allowed their loans to go into default. Not since the COVID pause in 2020 has the federal government made efforts to collect on defaulted loans or sent any new ones into collection.
President Trump paused federal student loan payments in 2020 during COVID and former President Biden continued this practice. These pauses ended October 2024 meaning tens of millions of student loan borrowers had to begin making payments again. Those in default must also now deal with their outstanding debt.
Beginning May 5, the Department of Education will begin collecting on these debts even if involuntary. Like with other debts, the government will use wage garnishments, withhold of tax refunds, and other recoverable benefits to repay the taxpayer.
“American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies,” Education Secretary Linda McMahon said.
Resuming collections protects taxpayers from shouldering the cost of federal student loans that borrowers willingly undertook to finance their postsecondary education. This initiative will be paired with a comprehensive communications and outreach campaign to ensure borrowers understand how to return to repayment or get out of default.
SUNY Suffolk alone awards more than $45 million in federal and state financial aid to more than 14,000 students annually. In 2022, 37% of undergraduate students attending Suffolk County Community College received financial aid through grants while 8% received financial aid through loans. The default rate for borrower's at Suffolk County Community College is low at less than 1%.
Over at Stony Brook, 45% of students graduate with debt and 40% of student at Farmingdale graduate with debt. Both colleges average %25,000 in debt. The average Long Islander with student loan debts owes just over $35,000.
Contrary to what many people think, most student loan debt is not held by lower income people. Over 56% of borrowers took out debt for graduate degrees that will bring them higher incomes throughout their career. Only 12% of student debt holders are in the bottom quarter of income at less than $27,000. 34% make more than $97,000 a year.
There are roughly 5.3 million student loan borrowers that are in default. A student loan does not go into default until there are no payments made for nine months. The Education Department reports that another 4 million are between 90-180 days late and 60% of all student loan holders are not current with their repayment terms.
The Department said, “Federal student loans are financed by the American people. Instead of protecting responsible taxpayers, the Biden-Harris Administration put them on the hook for irresponsible lending, pushing the federal student loan portfolio toward a fiscal cliff. Today, 42.7 million borrowers owe more than $1.6 trillion in student debt.”
Currently, almost 1.9 million borrowers have been unable to even begin repayment because of a processing pause put in place by the previous administration. Since August 2024, the Department has not processed applications for enrollment in any repayment plan. The Department is currently working with its federal student loan servicers and anticipates processing to begin next month. Much of this slow approach to collecting is because the Biden-Harris Administration planned to zero this debt out and put it on the backs of other taxpayers despite being denied the ability to do this by the United States Supreme Court.