With millions in default on student loan payments, collections will soon resume

Data: U.S. Department of Education; Chart: Kavya Beheraj/AxiosWith millions of borrowers behind on student loan payments, the Department of Education on Monday will start referring those in default for debt collection.The big picture: Some 5.3 million borrowers who are in default could see their wages garnished if they don't resume payments. The move ends a five-year period of no penalties for those who did not make payments on their student loans.Zoom in: Starting May 5, the department will begin involuntary collections through the Treasury Offset Program, which can garnish federal and state payments, like tax returns and social security benefits.There will be a 30-day notice, after which the department will start garnish wages for borrowers in default.Student loans go into default after 270 days without a borrower making payments.Context: Federal student loans, including those in default, have not been referred for collection since March 2020, when a leniency period was initiated during the COVID pandemic.Zoom out: 42.7 million borrowers owe more than $1.6 trillion in student loans.5 million people are currently in default, and almost a quarter of all federal student loan borrowers could be in the same situation in a matter of months, according to the Education Department.Just a fraction of borrowers, 38 percent, are making payments and are current on their loans, the department said."Most of the remaining borrowers are either delinquent on their payments, in an interest-free forbearance, or in an interest-free deferment, the department said. A small fraction are in a 6-month grace period or have payments paused while they're in-school.Between the lines: The share of recipients in arrears has gone up as the total number of recipients has declined, federal data show.On average, 3.2 million borrowers were in arrears before the pandemic pause. That rose to 6.3 million after the pause.At the same time, the total number of borrowers has declined, leading to a higher share of recipients who are behind on payments.What they're saying: When announcing the collections would resume last month, Secretary of Education Linda McMahon accused the Biden administration of misleading borrowers about the executive branch's authorities to wipe their debt, referring to former President Biden's plan to for sweeping student loan forgiveness."American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies," she said in a statement.Go deeper: What dismantling Education Department means for student loans

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