Student loan borrowers get more time after Trump delay on collections
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Student loan defaulters got a reprieve last week: Trump administration said Friday it would be done postponement of compulsory collectionsnow.
The pause marks a reversal for the U.S. Department of Education, which announced in late December that it would seize defaulted borrowers’ paychecks in early January. Over the summer, the department also backed away from a plan to begin garnishing some borrowers’ Social Security payments.
According to the report, approximately 9 million people are currently in default on their education debt. a new prediction By Protection Borrowers, an advocacy organization.
“The delay will give borrowers a fighting chance to get their credit into good shape, enroll in a more affordable repayment plan and protect their hard-earned wages from garnishment,” said Michele Zampini, vice president for federal policy and advocacy at the Institute for College Access and Success.
It is unclear how long collection activity will be paused. The Department of Education did not immediately respond to a request for comment.
In a press release announcing the postponement of foreclosures, department officials said the delay would allow them to implement recent changes to the student loan system included in President Donald Trump’s “big, good bill.” This law gives borrowers additional ways to avoid default and overhauls their repayment options.
Generally, the U.S. government has extraordinary collection powers over federal debts and can seize all federal tax refunds and a portion of debtors’ taxes. fees And Social Security retirement and disability benefits.
More than 42 million Americans have student loans and outstanding debt $1.6 trillionAccording to the Congressional Research Service.
Here’s what defaulted student loan borrowers should do while collections are paused, experts say:
File your taxes ‘immediately’
Just last week consumer advocates A warning to student loan borrowers that they could lose their tax refunds if they fall behind on their payments. Debtors may now be in the clear.
To preserve any potential tax refunds, student loan borrowers should “immediately file their federal income tax returns,” higher education expert Mark Kantrowitz said.
“The IRS will begin accepting federal income tax returns starting January 26,” Kantrowitz said. “If the return is made electronically, the refund will usually be issued within 21 days.”
Update your student loans as soon as possible
Bringing your student loans up to date as soon as possible will also prevent the government from seizing some of your wages or Social Security benefits when collections resume.
The Department of Education may offset up to 15% of a student loan holder’s after-tax income toward the debt. Social Security recipients can also often see up to 15% of their monthly benefits withheld to repay defaulted student loans.
Application for loan consolidation Kyra Taylor, a staff attorney at the National Consumer Law Center, said this is often the quickest way to avoid default. Taylor said the process could be completed in as little as four weeks. However, some defaulted borrowers may be required to make several on-time payments before consolidating, and not all borrowers, including those who have already consolidated their loans, will be eligible.
Other things to consider: Consolidating your loans, which involves repackaging your federal student debt into a new federal student loan, may also cause you to lose progress on your forgiveness timeline under some repayment plans, Taylor said. If consolidation is completed after June, borrowers may also lose their existing repayment options due to Trump’s “big, beautiful bill.”
Another way to get rid of the default state is credit rehabilitation.
This process involves making “nine voluntary, reasonable, and affordable monthly payments,” according to the U.S. Department of Education. The StudentAid.gov website states that these nine payments can be made “for 10 consecutive months.”
Your loan servicer may agree to end collection activity against you sooner if you begin rehab shortly after receiving a notice of default or if you have already made five rehab payments.
Find an affordable repayment plan
Consumer advocates say you need to find a student loan repayment plan you can afford to avoid default.
You can request an income-based repayment plan at: StudentAid.gov. IDR plans limit your monthly payments to a portion of your discretionary income and lead to debt forgiveness after a certain period of time (usually 20 years or 25 years).
Kantrowitz said it would be best for most borrowers to enroll in an Income-Based Repayment plan, or IBR. Trump’s tax and spending package gradually eliminates Income Contingent Repayment plan or ICR and Pay As You Earn plan or PAYMENTAs of July 1, 2028.
Starting July 1, 2026, student loan borrowers will have access to another IDR option: “Repayment Assistance Plan“or RAP. This plan offers debt forgiveness after 30 years, compared to the typical timeline for other plans. However, it will offer the lowest monthly bill for some borrowers because of its longer term.
Yes several vehicles available online to help you determine How much your monthly bill will be under different plans. Borrowers should be able to switch between repayment plans at any time.
Borrowers in particularly difficult financial circumstances may have the following options to pause their payments altogether: economic hardship postponement or unemployment deferment.
