Department of Education: Student Loans In Default To Be Sent To Collections

After a five-year break during the pandemic, the U.S. Department of Education will start collecting overdue student loans again on May 5.

People who haven't kept up with payments will see the Treasury Department take their tax refunds and federal wages. When summer comes, collection agencies will grab up to 15% of paychecks from Direct Loan borrowers who've fallen behind.

The situation looks grim - 5.3 million Americans have stopped paying their federal loans altogether. Another four million are three to six months late. Less than 40% are keeping up with their payments right now.

"American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies," said Education Secretary Linda McMahon to the Associated Press.

Mike Pierce, who leads the Student Borrower Protection Center, slammed the move: "cruel, unnecessary and will further fan the flames of economic chaos for working families."

There's a program to help people catch up and avoid wage garnishment. Borrowers need to make nine monthly payments on time to get in. Federal Student Aid offices will send the details by email.

Loans go into default when payments are missed for nine months. Most people currently in default stopped paying before or during the COVID payment pause.

"The worry is that the department is cutting staff that assists borrowers... now face diminished resources compared to before," former Under Secretary James Kvaal told ABC News. These cuts come from staff reductions at Federal Student Aid offices during the Trump years.

While courts stopped Biden's big loan forgiveness plan, other targeted programs have wiped out debt for five million people through Public Service Loan Forgiveness and borrower defense programs.

As part of getting money back, the Treasury will take federal payments like tax refunds. This includes people with Federal Family Education Loan Program loans through guaranty agencies.