Federal action planned for summer: Seizure of wages from 5.3 million delinquent student loan debtors under Trump administration's guidance
Revamped Guide:
Who's Back in the Game? Defaulted Student Loan Collection Resumed by Trump Administration
Surprise, borrowers! The Trump Administration just threw the ball back into your court, resuming collections on defaulted student loans as of May 5, 2025. And if you're not careful, you might be the one getting tackled financially. Here's what you need to know.
The Department of Education announced this week their plan of action, and unfortunately, it doesn't look friendly for the half-a-million borrowers currently in default. Things could start getting uncomfortable sooner than you think.
The Icy Grip of Fiscal Spring
Get ready to feel a pinch in your wallet, as around 195,000 student loan borrowers in default are being alerted that federal benefits, including Social Security retirement checks, could be taken by the government as early as June. Yikes!
Not only that, but later this summer, the U.S. Treasury Department will send notices to 5.3 million defaulted borrowers regarding the collection of their wages. Buckle up for a rough ride!
The Changing Game
Since the pandemic began in March 2020, loan collection activity had mostly been on hold. The Biden administration focused on extending relief measures to struggling borrowers in response to Covid-19 and helping them catch up.
The Trump administration's hardcore collection tactics, however, mark a sharp departure from this strategy, according to experts.
"Pay back what you owe," said U.S. Secretary of Education Linda McMahon in a video posted on April 22. The U.S. government boasts some powerful collection tools for federal debts, which can reach as far as seizing your federal tax refunds, wages, and Social Security retirement and disability benefits.
The Old Rules, Thrown Out the Window?
Historically, student loan borrowers were usually given 65 days' notice before their federal benefits were seized. But it seems things are moving faster this time around, with only a 30-day warning.
"That's unusual," said higher education expert Mark Kantrowitz. "Given the timing, it sounds like they're skipping some due diligence steps for collecting defaulted federal student loans."
Retirees, Watch Your Backs!
Carolina Rodriguez, director of the Education Debt Consumer Assistance Program in New York, expressed specific concerns about the consequences of resumed collections on retirees. Losing a portion of their Social Security benefits to repay student loans could mean not having enough for basic necessities, such as food or transportation to medical appointments.
There are currently over 2.9 million people aged 62 and older with federal student loans, an increase of 71% from 2017 when there were just 1.7 million such borrowers.
Quick Scores: Don't Snooze on Your Student Loans
Defaulting borrowers will receive emails notifying them of the new policy. To avoid collection activity, explore the following options:
- Contact the government's Default Resolution Group
- Enroll in an income-driven repayment plan
- Sign up for loan rehabilitation
- Request a retroactive forbearance to cover missed payments
- Request a temporary forbearance until you can enroll in an income-driven repayment plan
Stay alert, borrowers! You don't want to end up on the losing team.
- The Trump Administration's resumption of collections on defaulted student loans has revitalized the finance industry's portfolio, especially in the banking-and-insurance sector.
- With interest rates expected to rise due to loan collections, funds managed by financial institutions could be affected, potentially leading to a wobbling economy.
- As the government resumes its collection efforts, both the education and finance industries are bracing for a surge in debt repayments.
- Retirees should be cautious as their retirement funds might be at risk of garnishments if they have defaulted student loans.
- Many borrowers have been caught off guard by the sudden change in the loan collection policy, emphasizing the need for financial awareness and planning.
- Before the pandemic, the banking-and-insurance industry was seeing a decrease in loan demand due to deteriorating economic conditions, but the resumption of collections might reverse this trend.
- If borrowers find themselves unable to repay their loans, they should consider enrolling in loan rehabilitation programs or income-driven repayment plans to avoid default.
- As collections on defaulted loans continue, the student loan debt crisis could reach a billion dollars or more, potentially posing a significant challenge for borrowers and the economy.
