Benefits could be withheld from 5.3 million defaulted student loan borrowers, feds say
More than five million student loan borrowers who are behind on payments could face serious benefit consequences by the end of the summer.
The U.S. Department of Education announced on Monday, May 5 that by the end of summer, 5.3 million defaulted student loan borrowers will receive a 30-day notice from the U.S. Department of Treasury, notifying them that they could lose federal benefits. About 195,000 defaulted student loan borrowers received this notice on Monday, and the first federal monthly benefit checks to be impacted are those scheduled for early June, a statement reads.
"There's no such thing as forgiveness, just shifting the payment burden from one party to another. We will not force American taxpayers to take on the debts that are not theirs," Department of Education Secretary Linda McMahon said in an X post in late April. "Borrowers should pay back the debts they take on."
President Donald Trump first paused payments in March 2020 because of the COVID-19 pandemic, a pause that he later extended. Once former President Joe Biden was in office, his administration also issued multiple student loan payment pause extensions. Most borrowers were ordered to begin paying their loans back again in October 2023, the Department of Education said.
But once Trump returned to office in January, his administration announced that the Department of Education would start collecting payments, specifically for defaulted federal student loans, on May 5. The Department of Education reported in April that only 38% of student loan borrowers are caught up on their student loans.Student loan deadline: When do collections begin on defaulted student loans? What to know as deadline approaches
The Department of Education's announcement, in tandem with the collection of student loan payments, will be "very challenging" for student loan borrowers, Rob Moore, Missouri State University's financial aid director, told USA TODAY on Wednesday.
"A lot of these folks went for five years without making any payments on their student loans and there were questions about whether would ever need to," Moore said.
As student loan borrowers are looking to understand how much money they owe and how they pay it, Moore said he's repeatedly heard that borrowers are facing "extended" phone wait times, often having to call multiple days in a row to get in contact with anyone at the Financial Student Aid office or their loan providers to answer questions.
"I think that just contributes to the stress and anxiety and frustration that they're (student loan borrowers) feeling. When we start to implement these more punitive measures ... I think that escalates that emotion a little bit more," Moore added.
A loan default occurs when a loan has not been paid for a certain amount of time, specified in a loan contract. In the case of student loans, a loan goes default after it hasn't been paid for at least 270 days, which is about nine months, according to the Department of Education's Federal Student Aid.
A default is a part of the loan collection process and has consequences. When a student loan goes into default, borrowers may face a damaged credit score, legal action, asset seizure, higher insurance premiums, tax consequences or collection activities, like debt being sold to a collection agency, Federal Student Aid states.
To check if you have a loan in default, log in to your Financial Student Aid account at studentaid.gov/fsa-id/sign-in or call the Federal Student Aid Information Center at 1-800-433-3243. If accessing your account online, your Financial Student Aid dashboard will indicate if any loans are in default.
The most straight forward way to get a loan out of default is by paying it in full. However, this isn't realistic for many borrowers. The Department of Education offers two alternatives:
Loan rehabilitation: Agree to make nine "voluntary, reasonable and affordable" monthly payments within 20 days of a set due date and make all nine payments during a consecutive 10-month period.
Loan consolidation: Consolidate existing student loans into a new consolidation loan and agree to make three consecutive, voluntary monthly payments before the loans are consolidated.
Though the process of loan consolidation is quicker than loan rehabilitation, borrowers should be aware that accrued interest does get added to a new consolidation loan from former student loans.
To learn more about loan rehabilitation and consolidation, visit the Federal Student Aid website at studentaid.gov/manage-loans/default/get-out#loan-rehab.
Contributing: Saleen Martin, USA TODAY
Greta Cross is a national trending reporter at USA TODAY. Story idea? Email her at gcross@usatoday.com.
This article originally appeared on USA TODAY: 5.3 million defaulted student loan borrowers could lose benefits
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