The federal Department of Education is cracking down on student loan debt, announcing this week it will resume collecting defaulted federal student loan payments starting May 5.

It’ll be the first time in five years that the government has collected on defaulted loans.

The new policy could mean the department could take funds from someone’s salary, tax refund or other federal payments later this summer if they haven’t paid sufficiently.

First, though, those who could be affected will get emails in the next several weeks advising them of their status and offering help.

The pause on paying most federal student loans began in 2020 as a way of providing relief from the sudden economic downturn caused by the COVID-19 pandemic.

In California, before 2020, the delinquency and default rates were very low, according to a 2023 study by the nonpartisan Public Policy Institute of California.

The PPIC found that about one in four borrowers who did not graduate and about one in five borrowers from private for-profit institutions were in delinquency or default.

About 3.9 million California students had about $151 billion in outstanding principal and interest on federal student loans as of September 30, according to federal government data.

The PPIC found that about one third of students at the University of California and California State University take out federal loans. About 46% of students at nonprofit private institutions do so.

The new normal on student loans

The government, said Education Secretary Linda McMahon in a statement this week, “will shepherd the student loan program responsibly and according to the law.”

The policy is a “return to normalcy,” said Scott Buchanan, executive director of the Student Loan Servicing Alliance, the nonpartisan industry trade group. “This can feel like a lot of change but it’s nothing new,” he told The Bee.

But Mike Pierce, executive director of the Student Borrower Protection Center, saw the new policy very differently.

“There is a state of anxiety and dysfunction that’s unique to this moment,” he told The Bee. “Even before the pandemic, this wasn’t working well.”

The Trump administration’s decision is the latest development in a political war over student loans that’s raged for years.

The Biden administration tried mightily to provide relief from student debt. Former Education Secretary Miguel Cardona told The Bee last year doing so was “common sense,” and that it was unfair that many owed more than the initial cost of college.

Biden at one point proposed allowing borrowers to forego up to $20,000, with amounts varying depending on financial and other circumstances. Republicans protested, and courts thwarted the Biden plan.

That led to this week’s Trump administration announcement.

“Federal student loans are financed by the American people,” said a department statement. “Instead of protecting responsible taxpayers, the Biden-Harris administration put them on the hook for irresponsible lending.”

Q and A on loans

Some questions and answers about the program:

How many people could be affected? The education department estimates that 38% of borrowers nationally are current on their loans.

Of the rest, they are delinquent or have defaulted. Being delinquent means you missed a monthly payment. Default means you’re at least 270 days late.

What if you’re delinquent? You can contact the Federal Student Aid office and request a repayment plan. The government will apply an “administrative forbearance,” meaning your payment is suspended while waiting for the application to be approved.

Once it is approved, repayment begins under a new plan, perhaps with a lower payment, and interest continues to accrue.

Pierce, from the Student Borrower Protection Center, is concerned about backlogs and what he called a government “that’s not working well.” It’s also unclear what happens if the Department of Education is dismantled, as Trump has proposed.

What if you’re in default? The emails going out in the next weeks to those in default will urge borrowers to contact the department’s Default Resolution Group to either start making monthly payments or sign up for loan rehabilitation.

Rehabilitation is a process that allows the government to look at your income and come up with a manageable payment for nine months. If you make those payments, your loan goes out of default.

You could also opt for loan consolidation, which is refinancing the loan and which will likely make loan payments more affordable.

At the same time, though, default could result in wage garnishment or withholding of federal payments such as Social Security. If you sign up for the rehabilitation program, the government usually suspends collection efforts.

Who is most affected by this new policy? A wide range of people. “Default is a shockingly common outcome for borrowers in the federal student loan system,” said Chris Hicks, senior policy adviser at the protection center, in a blog post.

Hicks found that, nationally, nearly 40% of federal borrowers over 65 are in default.

A Pew study released in December found that over the past 20 years, half of Black and 40% of Hispanic or Latino student loan borrowers have had a loan default, compared with 29% of white borrowers.

“Once borrowers fall into default, the prospects of the student loan system guiding them back on track are grim,” said Hicks. “Because there is no statute of limitations on collections for federal student loans, these borrowers can remain locked in the Department’s debt collection machinery indefinitely.”

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