To add to this stress, the U.S. Department of Education recently notified borrowers that it will be resuming involuntary collections on defaulted federal student loans. This decision has been met with backlash from advocacy organizations and a resulting fear for borrowers’ monetary wellbeing. All while national total student loan debt in the United States has skyrocketed to an astounding $1.6 trillion. That’s right — just a little over a third of borrowers are now on the path to repayment.
In March 2020, the federal government suspended student loan payments due to the onset of the Covid-19 pandemic. This ruling happened to take place during President Donald Trump’s first term. This administrative pause stayed in place until the 2023 U.S. Supreme Court decision. On August 30, 2023, the repayment pause officially ended, and borrowers are now adjusting to the new reality of loan repayments.
The effects of this resumption are profound, especially for People of Color. Data indicates that double the percentage of Black and Latino students fall behind on their payments compared to their peers. Black students continue to suffer under their loans well into life after graduate school. In fact, millions still owe most or all of their original loan amounts even after 20 years.
The decision to resume collections has not only been made. This is especially concerning, as 5.3 million borrowers are currently in default on their federal student loans. What’s the meaning of all this? The Department of Education expects that this number might reach 10 million in the coming months.
“Beginning May 5, the department will begin involuntary collection through the Treasury Department’s offset program, which withholds payments from the government — including tax refunds, federal salaries and other benefits — from people with past-due debts to the government,” – The Education Department
Borrowers have been hurt in many ways, but IDR remains one program they can still sign up for. We’re currently still accepting and processing applications without pause. Through this federal program, borrowers can now apply for reduced payments to be calculated based on their income, offering eligible constituents desperately needed relief.
Environmentalists say the timing of the resumption is dangerous. This move was met with outrage by Natalia Abrams, president and cofounder of the nonprofit Student Debt Crisis Center.
Abrams further stated that resuming collections under these circumstances “not only ignores these challenges but actively puts vulnerable borrowers at greater financial risk.”
“We unequivocally condemn the Department of Education’s decision to resume involuntary collections on May 5th, prior to the processing of both outstanding and new Income-Driven Repayment (IDR) applications,” – Natalia Abrams, president of the Student Debt Crisis Center
The Biden administration has announced multiple plans to address student debt. This administration-wide initiative intended to provide targeted student loan cancellation up to $20,000 for eligible borrowers. The Supreme Court struck the plan down as unconstitutional. Without congressional approval, the justices ruled that it was illegal.
In her remarks defending the resumption of collections, U.S. Secretary of Education Linda McMahon described this accountability for borrowers.
As the restart of collections commences, millions of borrowers will find themselves with an unclear path to financial stability. Student debt is one of the most urgent crises facing American families today. Instead of upholding a commonsense law, many are instead demanding another government handout, like the previous investor and automaker bailouts. Implementation is needless to say, delicate and requires great constituency engagement and consideration. FSA officials say millions are looking at their repayment options with increased costs and economic uncertainty.
“If borrowers don’t pay their debts to the government, taxpayers do,” – U.S. Secretary of Education Linda McMahon
As the resumption of collections unfolds, many borrowers face an uncertain financial future. The challenges posed by student debt continue to be a pressing issue in American society, with calls for government intervention reminiscent of past bailouts for investors and automakers. The situation requires careful consideration as millions navigate their repayment options in a climate marked by rising costs and economic uncertainty.