The Department of Education is restarting its collection of defaulted student loans after a five-year halt.
Repayment requirements have been halted since March 2020 due to the COVID-19 pandemic. However, that will change on May 5, when the Education Department will resume collecting payments.
“American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies,” Secretary of Education Linda McMahon said in a statement.
She criticized the Biden administration for having “misled borrowers,” arguing the executive branch doesn’t have the authority to cancel debt.
“Hundreds of billions have already been transferred to taxpayers. Going forward, the Department of Education, in conjunction with the Department of the 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,” McMahon said.
Echoing conservative arguments about student loans, the announcement said former students have a duty to repay the amount since they took out the funds on their own volition. It also promised “comprehensive communications and an outreach campaign” to inform borrowers how to repay the amount or get out of default.
A total of $1.6 trillion is owed by 42.7 million borrowers. Five million borrowers haven’t made a monthly payment in over 360 days and are in default. The department warned that nearly 25% of the federal student loan portfolio will be in default within the next several months.
The move was backed by the Committee for a Responsible Federal Budget, which argued it was long overdue.
“While a short repayment pause was justifiable early in the pandemic, that was five years ago — and it makes no sense today,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget.
“Student loan borrowers have been made far too many false promises, and have served far too long as political pawns in a confusing and legally questionable policy back and forth. It’s time for the federal government to be honest with these borrowers, and to get its $1.6 trillion of loan holdings under control,” she added.
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MacGuineas said a legislative solution is needed to solve the problem of student loans, put together an effective servicing and collection apparatus, and improve the cost and quality of higher education.
“Meanwhile, the Administration is taking the right approach by beginning to restart repayments in earnest and conducting a creative and aggressive outreach strategy to make sure borrowers understand their obligations,” she said.
