Many student loan borrowers are in for a big, bad surprise in 2025


Millions of Americans who are behind on their student debt may face a financial shock next year: The federal government is expected to start collecting on defaulted loans for the first time since payments were paused during the pandemic.

Though the Biden administration required borrowers to begin making their normal repayments in 2023, it has yet to resume efforts to recover money involuntarily from people with seriously past-due balances. That process can involve garnishing wages, tax refunds, and Social Security benefits, along with formal legal proceedings.

There are approximately 5.6 million former students currently in default, meaning their loans are at least 270 days behind on payment, who could be immediately affected when collections crank back into gear, according to Department of Education data. That number has remained stubbornly high despite years of efforts by Biden officials aimed at helping troubled borrowers get up to date on their debts.

Policy experts and advocates who work directly with borrowers told Yahoo Finance that they are worried many of those individuals could be caught off-guard when the government’s debt collectors come calling. That’s because people in default tend to be lower-income individuals who often don’t fully understand the terms of their loans or repayment options.

“Some defaulted borrowers may think things have cleared up, that they’ve hit a statute of limitations or their debts have been forgiven, or don’t really know why their loans haven’t been collected over the last four years,” said Tia Caldwell, a senior higher education policy analyst at New America. “The worry is that people think their debt is cleared up and that they’re going to be in for a rude awakening.”

The White House said in October that it would not begin pursuing debtors in default until sometime in 2025, but it has not set an official start date. With Biden’s term winding down, it’s widely expected that he will leave the tricky task of revving up those collections to President-elect Donald Trump and his nominee to lead the Department of Education, former WWE CEO Linda McMahon, who have yet to weigh in on the issue.

UNITED STATES - SEPTEMBER 12: Linda McMahon, former administrator of the U.S. Small Business Administration, speaks during a discussion hosted by America First Policy Institute (AFPI) and The Abraham Accords Peace Institute, in Washington D.C., on Monday, September 12, 2022. The event marked the second anniversary of the Abraham Accords with Israel and its regional neighbors. Jared Kushner, former senior advisor to President Donald Trump, participated in the discussion. (Tom Williams/CQ-Roll Call, Inc via Getty Images)
What will she do about student debt? Linda McMahon, President-elect Trump’s choice to lead the Department of Education. (Tom Williams/CQ-Roll Call, Inc via Getty Images) · Tom Williams via Getty Images

“It seems likely that … McMahon will inherit a student loan system where she will have to turn wage garnishment back on,” said Mike Pierce, executive director of the Student Borrower Protection Center. “That’s an affirmative decision the Trump administration is going to have to make.”

The relatively high rate of default on student loans has long been a source of frustration for education policymakers. In 2019, about 10% of debtors had fallen into default within three years of starting repayment — down from years past, but still vastly higher than the delinquency rates on mortgage or auto loans.



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