What if You Can't Pay Your Student Loan? Trump Sets New Deadline

Newsweek

22-04-2025

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The Trump administration has announced it will resume collection efforts on defaulted federal student loans starting in early May.
Why It Matters
The resumption of payments will impact more than 5 million borrowers who are currently in default, the Education Department said, adding that another 4 million borrowers are late in making payments.
What To Know
Defaulted student loans have not been collected since March 2020 when the federal government activated a process known as administrative forbearance, which was put in place due to the economic turbulence caused by the coronavirus pandemic.
The Biden administration extended the pause several times before repayments became due again in October 2024. Borrowers become delinquent from the first day a payment is late, and for most federal student loans, the outstanding balance goes into default after 270 days, or roughly nine months, of non-payment.
The Education Department said it will begin informing borrowers who are in default via email over the next two weeks, urging them to make a payment or to enroll in a repayment plan.
If action is not taken by May 5, defaulted borrowers will become subject to wage garnishment to collect their outstanding balances.
Stock image/file photo: A mortarboard laid on U.S. dollar bills.
Stock image/file photo: A mortarboard laid on U.S. dollar bills.
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What Happens If You Can't Pay
Failing to make your student loan payment on time—or missing it altogether—can eventually lead to default. Once your loan goes into default, the full remaining balance of your loan, along with any accrued interest, becomes immediately due (known as "acceleration"), and the government has the authority to recover the debt by garnishing your wages, withholding tax refunds, and seizing other federal payments.
Other consequences include:
Losing access to deferment, forbearance, and other benefits—including the option to choose a repayment plan.
Becoming ineligible for additional federal student aid, such as Federal Pell Grants and new student loans.
The default is reported to credit bureaus, which can significantly lower your credit score and impact your ability to finance a car, home, or obtain credit cards. Rebuilding your credit can take several years, and you could face restrictions on buying or selling certain assets, like real estate.
Your loan holder has the right to take legal action against you, and you could be responsible for additional costs, including court fees, collection expenses, and attorney fees related to the collection process.
Repayment Plans
The Department will also restart processing of applications for Income-Driven Repayment (IDR), which allows borrowers to tie loan payments to their incomes. Borrowers will have until May 5 to apply for a repayment plan if they are delinquent or in default.
There are four main types of repayment plan:
Income-Based Repayment (IBR)—sets monthly payments at 10 to 15 percent of a borrower's discretionary income, making it a suitable option for those with a high debt-to-income ratio. Borrowers can qualify for loan forgiveness after making 20 to 25 years of payments.
Income-Contingent Repayment (ICR)—determines payments as either 20 percent of discretionary income or a fixed amount over 12 years, whichever is lower. Loan forgiveness is available after 25 years, and this is the only income-driven plan accessible to Parent PLUS Loan borrowers through consolidation.
Pay As You Earn (PAYE)—caps payments at 10 percent of discretionary income and is available only to those who took out loans after October 1, 2007. Borrowers can receive loan forgiveness after 20 years of qualifying payments.
Revised Pay As You Earn (REPAYE)—requires payments of 10 percent of discretionary income, regardless of income level. Loan forgiveness is granted after 20 years for undergraduate loans and 25 years for graduate loans.
If you don't pick a repayment plan, your loan servicer will place you on the Standard Repayment Plan (a 10-year fixed payment repayment plan), which may result in a higher monthly payment.
What People Are Saying
U.S. Secretary of Education Linda McMahon said in a press release issued on April 21: "American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies. The Biden Administration misled borrowers: the executive branch does not have the constitutional authority to wipe debt away, nor do the loan balances simply disappear. Hundreds of billions have already been transferred to taxpayers.
"Going forward, the Department of Education, in conjunction with the Department of Treasury, will shepherd the student loan program responsibly and according to the law, which means helping borrowers return to repayment—both for the sake of their own financial health and our nation's economic outlook."
Student Borrower Protection Center (SBPC) executive director Mike Pierce said in a statement: "For five million people in default, federal law gives borrowers a way out of default and the right to make loan payments they can afford. Since February, Donald Trump and Linda McMahon have blocked these borrowers' path out of default and are now feeding them into the maw of the government debt collection machine. This is cruel, unnecessary, and will further fan the flames of economic chaos for working families across this country."
What Happens Next
The Education Department's Office of Federal Student Aid will email all borrowers in default over the next two weeks. Later this summer, it will begin sending notices to initiate wage garnishment for those who remain in default.