The return of student loan debt collection: What borrowers need to know

After a five-year pause, the Trump administration is bringing back financial penalties for the many millions of borrowers who are too far behind on their student loan payments. It’s led to confusion and financial uncertainty. 

At least 5 million people are in default, meaning they have failed to make payments on their loans for at least nine months — and millions more are projected to join them in the coming months.

The Hechinger Report spoke to student loan experts about what to expect and how to prepare, as well as about a separate effort in Congress to adjust how student loans work.

The Biden administration restarted loan repayments in October 2023. That came without any consequences, however, for about a year. But interest, which had also been frozen since the start of the pandemic, has been piling up for some borrowers since the fall of 2023.

All told, about 43 million federal student loan borrowers owe a total of $1.6 trillion in debt. Starting May 5, those in default face having tax refunds withheld and wages garnished if they don’t start making regular payments.

A college degree can be a path to long-term financial security, but the process of repaying loans can lead to financial hardship for many borrowers. About half of all students with a bachelor’s degree graduate with debt, which averages more than $29,000. And although average debt tends to be lower for graduates of public universities (about $20,000), close to half of people who attend those schools still leave with debt.

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The student loan landscape is likely to change in some way over in the coming months: The Trump administration is expected to push the limits on aggressive collection practices, while Republicans in Congress are determined to adjust repayment options. Here’s what we know about what the Trump administration’s actions mean for student borrowers.

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What happens if I don’t start repaying my loan?

Once you’ve failed to make a loan payment in 270 days, you will probably enter into default. That means, as of May 5, the government can take your federal tax refund and apply it to your debt. Starting in June, the government can also withhold up to 15 percent of any money you receive from Social Security, including disability payments. And later this summer, officials said, they will start the process of taking a cut of your paycheck, although borrowers have the right to appeal. Going into default can also harm your credit score, which can make it harder to rent an apartment or borrow money for other reasons, like buying a car.

Can I go back to school to avoid repaying my loans?

Some influencers on social media have recommended enrolling in school as a way to delay making payments. It’s true that most loans are deferred while you’re in school, meaning you wouldn’t have to pay while you’re taking classes, but you may also add to what you already owe if you spend more time in college. Unless you’re confident a new certificate or degree will boost your income, delaying repayment and increasing what you owe could make paying off your loans even more difficult. 

I can’t afford to repay my loan. What should I do?

There are other options. One type links your monthly payments to what you earn. These income-based repayment plans can shrink your monthly loan bill. There is also a graduated repayment plan that can lower your payments initially, after which they increase every two years. A third option is an extended repayment plan, which lowers your monthly payments but adds months or years to the time it will take to pay off your loans. The government’s Loan Simulator is one way to find options available to you. 

Where can I go if I need help?

The Education Department’s Default Resolution Group can help provide advice for borrowers who are already in default. The Federal Student Aid call center is set up to answer questions. Borrowers can also reach out to their loan servicers for guidance.

Related: The Hechinger Report’s Tuition Tracker helps reveal the real cost of college

What’s the difference between loan deferment, loan forbearance and default?

• Loan deferment: The Education Department may grant a loan deferment for several reasons, including when a borrower is experiencing an extreme economic hardship or is unemployed. That means the borrower can temporarily stop paying off the loan without any financial penalties; in the case of subsidized undergraduate loans, interest doesn’t keep accruing during that time. 
• Forbearance: A loan forbearance also allows a borrower to stop payments, or make smaller ones, without any penalties. However, interest usually keeps building on all loans during that time. 
• Default: If a borrower is in default, it means they have failed to make payments for at least 270 days without permission. That’s when the government can begin to garnish tax refunds, Social Security benefits and wages, and a borrower’s credit score will drop.

I’ve heard income-driven repayment plans are in trouble. Is that true?

There are several types of income-driven repayment plans, which are meant to keep payments affordable. The Biden administration’s Saving for a Valuable Education (SAVE) plan is on hold because of legal challenges from Republican-led states. That plan previously offered eligible borrowers a repayment plan with lower monthly payments and a quicker path to loan forgiveness than other previously available options. But borrowers can still enroll in the Pay As You Earn (PAYE) plan and other income-based repayment options, in which payments are capped at 10 percent of a borrower’s income, or the Income-Contingent Repayment Plan, which requires payments of up to 20 percent of income and allows full repayment more quickly. Congressional Republicans hope to eliminate several of these plans in favor of just one income-based repayment plan, but it’s unclear if that bill will pass the Senate.

Related: College Uncovered: The Borrowers’ Lament 

What’s happening with the court cases challenging the SAVE program? 

Courts have effectively paused the SAVE plan. The 8 million borrowers who are enrolled don’t have to make payments, and interest will not be added while the court decides the case. With those payments paused, borrowers in this group who are intending to seek loan forgiveness for working in public service are also not making progress toward that goal. If Congress eliminates the SAVE program or the courts officially kill it, those borrowers would need to enroll in a different repayment plan.

Does Public Service Loan Forgiveness (PSLF) still exist?

Yes, the Public Service Loan Forgiveness program is still available. Borrowers should still be eligible if they are in an income-driven repayment plan and make regular payments for 10 years. They must work for the federal, state or local government — teachers and firefighters are eligible, for example — or for qualifying nonprofit organizations, such as some health care clinics or foster care agencies. The goal of PSLF is to encourage graduates to pursue careers that may pay less than jobs with private companies but which benefit their communities or the country as a whole. 

The Trump administration issued an executive order in March aimed at limiting which organizations’ jobs could qualify for PSLF — for instance, a nonprofit could be excluded if the government decides it is “supporting terrorism,” engaging in civil disobedience or aiding undocumented immigrants in violation of federal law. So far, it’s unclear what the effect will be.

Related: Student loan borrowers misled by colleges were about to get relief. Trump fired people poised to help

What other changes might be in store for student loans?

As part of the federal budget process, congressional Republicans have proposed a slew of changes to student loans that some policymakers worry will make borrowing more expensive for students — especially those in graduate programs. 

The proposals include changes to: 

• Subsidized loans: Congressional Republicans want to get rid of subsidized loans for undergraduates, which would mean interest would accrue while a student was in college. They also want to cap total undergraduate borrowing at $50,000. 
• Grad Plus: They also want to end the Grad Plus program, which allows students to borrow money to cover the cost of graduate school. Student advocates worry that this would push more students into the private student loan market, which has fewer protections for borrowers. 
• Income-driven repayment: One proposal would simplify income-driven repayment into one option and prevent interest from causing student debt to balloon for students in income-driven repayment plans. 

The proposed changes are included in the federal budget bill and may undergo many revisions as Congress figures out its spending priorities for the year.

Contact senior investigative reporter Meredith Kolodner at 212-870-1063 or kolodner@hechingerreport.org or on Signal at merkolodner.04

This story about student loan repayment was produced by The Hechinger Report, a nonprofit, independent news organization focused on inequality and innovation in education. Sign up for the Hechinger newsletter.

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