The U.S. Department of Education will resume collections on defaulted federal student loans in May for the first time since the pause began in 2020 at the height of the COVID-19 pandemic. The policy, set to take effect on May 5, marks a significant shift in the federal government’s approach to managing the growing student loan portfolio.
A senior department official warned that the student loan system is nearing a “fiscal cliff” due to continued growth in delinquencies and defaults. Currently, only about 40% of borrowers are current on their payments, while the remaining 60% are either behind or at risk of falling behind. Roughly 4 million borrowers are reportedly between 91 and 180 days overdue.
The upcoming collections will be carried out in partnership with the Treasury Offset Program, which can recover overdue funds through measures like tax refund withholding. In anticipation of the policy change, the department is also launching a communication campaign to inform borrowers of their status and encourage enrollment in auto-debit programs to reduce late payments.
Officials emphasized that student loan debt must be repaid and that taxpayers should not bear the financial burden of nonpayment. The return to collections reflects a broader belief that the sustainability of the loan system relies on borrower accountability.
Alongside the resumption of collections, the department is expressing interest in working with lawmakers to reform the student loan repayment structure and address the rising cost of higher education. Legislative proposals, such as the Employer Participation Repayment Act, would allow employers to contribute up to $5,250 tax-free toward their employees’ student loan payments. The bipartisan bill, introduced in both the House and Senate, aims to provide long-term support for borrowers.
Currently, nearly 43 million Americans hold federal student loan debt, totaling approximately $1.6 trillion.
The department’s move comes amid broader efforts by the current administration to restructure federal education policy. While plans have been introduced to scale back the department’s overall footprint, functions related to key financial aid programs like Pell Grants and services for individuals with special needs are expected to be maintained under other federal agencies.
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