Student loan borrowers across the United States are bracing for significant changes as the new federal government prepares to take office and collections for defaulted loans are set to resume in January 2025. After more than three years of suspended payments during the coronavirus pandemic, millions of borrowers who have benefited from low or no repayments will soon face the reality of their student debt.
With the Biden administration confirming plans to begin collecting repayments for those with defaulted loans, the stakes are high for tens of millions of student borrowers. According to the Education Data Initiative, 8.15 percent of student loan debt is typically in default, with around 471,000 borrowers defaulting annually after their second year of repayment. This decision is particularly alarming for many who have relied on various support measures during the pandemic.
During the pandemic, the federal government halted collection activities on defaulted federal student loans, providing extensive forbearance relief to borrowers. This opportune pause on collections, which spanned from March 2020 to September 2023, offered borrowers some respite. The extension of this pause through 2023 included what was termed "on-ramp" repayment, allowing borrowers who experience missed payments not to enter default status, though interest continued to accrue on their balances.
Starting January 2025, the Department of Education plans to actively report any late or missed payments to national credit reporting agencies. This means borrowers will face severe penalties, including wage garnishment and tax refund interceptions, if they are unable to keep up with their repayments. The Department stated, "These borrowers should know...triggering mandatory collections and other consequences in late 2025." This move puts pressure on borrowers to navigate their financial recovery as swiftly as possible.
Yet, during this turbulent time, the incoming Trump administration raises many concerns. With Trump’s return to the White House on January 20, 2025, many expect substantial reversals of the student loan policies enacted under President Biden. Linda McMahon, expected to take over as Education Secretary under Trump, will likely have to address these complex debts. Mike Pierce, Executive Director of the Student Borrower Protection Center, predicts, "It seems likely...going to have to make," referring to the likely reintroduction of wage garnishments after the impending administration take over.
One central piece of Biden’s strategy has been the Saving on a Valuable Education (SAVE) plan, which aims to reduce monthly payments and pave the way for debt forgiveness. Nevertheless, the SAVE plan's survival now hangs by a thread. Legal challenges from several Republican-led states, claiming procedural wrongdoing, threaten to dismantle this repayment plan just as borrowers begin to emerge from the pandemic’s financial hold.
Contrastingly, Trump has actively criticized attempts to broaden forgiveness measures during his previous tenure. He stated, "Very, very unfair to the millions...who have paid their debt through hard work," addressing Biden's effort to forgive up to $430 billion owed by borrowers as merely "a way to buy votes." This sentiment indicates the likelihood of changes to, if not outright elimination of, current student loan relief measures.
With uncertainty clouding the immediate future, borrowers currently enrolled in the SAVE plan hope to stave off rising payment demands. Michael Lux, founder of the Student Loan Sherpa, commented, "Millions of borrowers signed up for the SAVE repayment plan, and the vast majority of them should expect to see their payments increase." This adjustment would require many to pivot to Income-Based Repayment, which typically features larger payments compared to the SAVE plan.
Under Trump’s presidency, the administration will have extensive leeway to reverse Biden’s sought-after programs. Trump-supporting lawmakers and groups are lobbying for significant policy shifts, and previous indications from the former president suggest he may aim for regulatory changes similar to those achieved without direct Congressional approval during Biden's term. The SAVE adjustments could be swiftly dismantled under such conditions.
Further clouding the waters is the ambiguity surrounding the upcoming Court of Appeals ruling relating to Biden’s debt relief efforts. With the judicial path tangled up, millions of borrowers remain uncertain about their financial futures.
With the economic topic of student loan debt becoming pivotal to the 2024 elections, it’s clear borrowers soon may find themselves enmeshed with heavier burdens than they anticipated. Trump's campaign strategy has remained somewhat opaque about how he intends to handle student debt, with no specific recommendations proposed as of yet.
Considering the potential elimination of the SAVE plan and the burden of restarting repayments, experts caution borrowers to prepare for any coming changes. Looking forward to the close of 2025, one thing appears evident: The student loan crisis is far from resolved.
