- President Donald Trump ends a pause on student loan repayment, meaning millions of borrowers are about to default on their loans.
- This is part of his larger effort to slash government spending and dismantle the Department of Education.
- For borrowers about to go into default — don't panic. There are ways to pay back your loan.
On Monday, the Department of Education restarted collections for millions of student loans in default. This move is part of President Donald Trump’s work to cut federal spending and end policies enacted former President Joe Biden, including widespread student loan forgiveness.
The Department of Education reported that more than 5 million borrowers in default will be affected immediately, while millions more former students are rapidly approaching the default threshold.
About 42.7 million former students owe over $1.6 trillion in debt — and only 38% of those borrowers are current on those loans.
“American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies,” Secretary of Education Linda McMahon told the media. “The Biden administration misled borrowers. The executive branch does not have the constitutional authority to wipe debt away, nor do the loan balances simply disappear.”
All this comes amid Trump’s efforts to dismantle the Department of Education. About 2,000 DOE employees have been cut since January, when Trump took office for the second time.
The DOE’s next steps
The Biden administration paused mandatory student loan repayment during the COVID-19 pandemic and then continued it throughout Biden’s entire term. Biden also advertised student loan forgiveness during his presidential campaign and made efforts throughout his entire presidency to do so, but was blocked by the Supreme Court and Congress.
Interest accrual was also temporarily paused on student loans — meaning that borrowers owe less than they would have without Biden’s interest pause.
The Trump administration intends to first cajole borrowers to pay back their loans before employing more extreme measures. Federal Student Aid will send emails that urge borrowers to begin paying back their loans, while also pointing them toward repayment options.
Later in the summer of 2025, the FSA will start to order wage garnishment, meaning a borrower’s employer will automatically withhold a portion of pay and send it to the federal government.
If you’ve defaulted on student loans or are close to defaulting on student loans, what should you know?
Federal student loans go into default after 270 days without payment. If you’re in default or about to enter default, here’s what may happen.
Defaulting on a loan is a lot more financially serious than slowly paying the loan.
Defaulting on a student loan causes loan acceleration, meaning that the unpaid balance of the loan and applicable interest both immediately become due.
Tax refunds and federal benefit payments can be redirected from your bank account to the federal government; wages may be garnished, meaning employers might automatically withhold a portion of your pay and send it to your loan holder; and your default goes on your credit record, bringing down your credit score, which has serious implications for your future ability mortgage a house, buy a car or get a credit card.
Current students will become ineligible for additional federal financial aid. Their school might also withhold an official transcript.
In severe cases, loan holders may even take borrowers in default to court.
How do borrowers get out of default?
The Department of Education has made agencies available to help borrowers make up their debt. There are a couple options available for former students in default.
- Loan rehabilitation: Borrowers in default can rehabilitate their loans by making nine voluntary and uninterrupted payments over a 10-month period. By rehabilitation a loan, you become reeligible for federal student aid, the default will disappear from your credit history, wage garnishment will stop and federal benefits like tax refunds will resume.
- Loan consolidation: Borrowers in default can consolidate one or more student loans into a federal Direct Consolidation Loan. This effectively restarts your loan, meaning you are no longer in default — but the default remains on your record. Further, you can’t consolidate your loans if wage garnishments are already paying them back.
After getting out of default, borrowers can take additional efforts to stall their loan payments and earn income, including loan deferment, loan forbearance and income-driven repayment plans.
What do borrowers do if they’re out of money?
Student loan borrowers can declare bankruptcy, which allows student loans to be discharged. Such borrowers must successfully convince a court that “undue hardship” has prevented them from paying back their student loans.
If borrowers are unable to maintain a certain standard of living while also paying back student loans, and if they exhibit good-faith effort to repay the loan, they are then able to declare bankruptcy and shed their debt.