The Education Department is again garnishing wages to pay off student loans.

 

This time, millions of borrowers could also be garnished for their Social Security and tax refunds to pay off their student loans.

A five-year moratorium on debt collection ends next month.

 Meanwhile, the Education Department will once again begin deducting debt from Social Security benefits and tax refunds for those who have defaulted on their loans. The Education Department will begin with payroll deductions this summer.

When the federal government suspended debt collection during the pandemic, about 5.3 million borrowers were in default — meaning they had not made a payment for at least 360 days. So when the Education Department resumes collection on May 5, those borrowers could face dire financial consequences.

“No more American taxpayers will be used as collateral because of the unfair student loan policies,” Education Secretary Linda McMahon said in a statement Monday. He added, “The Biden administration has misled borrowers that the executive branch has no constitutional authority to erase loans or cancel balances.”

The recovery process is starting again as federal student loan delinquency rates rise. The Department of Education said that at the end of March, there were about 4 million borrowers who were 90 days or more past due on their payments.

A 12-month period known as “on-ramp” was recently lifted, which allowed borrowers to gradually return to paying their loans after more than three years. But millions of borrowers have failed to repay since that plan expired on Sept. 30.

If these outstanding loans default, about 25% of federal student loans could be in default this summer, the Department of Education said in a statement Monday. A senior official told reporters that the loan portfolio would face a “financial cliff” if the Trump administration did not resume involuntary foreclosures.

McMahon said his agency, with the help of the Treasury Department, would “run the student loan program responsibly and within the law,” which means providing full assistance to borrowers to get back on track and protect their own financial health and the national economy.

The Education Department will send emails to borrowers in the coming weeks—those who are in default—so they can get their loans back in good standing. Under a second initiative by the Biden administration called “Fresh Start,” those who were in default on government loans were given the opportunity to rehabilitate those loans.

After reaching out to borrowers who are in default, officials will now focus on those who are behind on payments. More than 35 percent of the loan portfolio is more than 60 days past due, according to the Education Department.

Former President Joe Biden's "Saving on a Valuable Education (SAVE)" program is currently on hold due to an ongoing lawsuit, which is one of the reasons why student loan repayment rates have dropped by 38%.

The Department of Education has suspended payments for nearly 8 million participants due to the injunction issued in the lawsuit. At the same time, the department has stopped accepting and processing applications for income-based repayment plans, which promise to forgive loans over 20-25 years and adjust monthly payments based on family income.

The injunction alone has placed 1.9 million people in "forbearance" until their payment applications can be processed. However, the department said it will resume the process next month.

Student loan repayments were suspended during Donald Trump's first term; Congress later formally enacted the moratorium in the 2017 stimulus package. Since then, the moratorium has been extended repeatedly under the Biden administration as part of a larger payment moratorium.