The U.S. Department of Education announced on Monday that it would resume involuntary collections of defaulted federal student loans on May 5. The announcement means that borrowers who have loans in default could see their tax refunds seized or wages garnished. While many borrowers and advocacy organizations will oppose the move, resuming collections is necessary to incentivize loan repayment. The announcement was never a matter of if, but when.
The current student loan mess
The federal government suspended student loan payments in March 2020 in response to the Covid-19 pandemic; this meant that payments were not due, interest rates were zero, and loans in default were not collected. The government extended the pause several times before it finally lapsed, in effect, in October 2024. Payments have been due for the past six months, meaning borrowers who don’t pay will face consequences.