Thousands of people will receive a letter they’ve been dreading for 5 years, student loan repayment resumes
Trump’s Education Department warns that millions of student borrowers could be sent to collections over their failure to pay over the last year.
After five years, many borrowers are receiving notices at a particularly inconvenient time. Since the pandemic began, the Department of Education has allowed payments to be paused without interest accruing on loans.
According to a May 5 report from The Wall Street Journal, letters have been sent from the Department of Education (DoE) to borrowers who defaulted on their student loans, informing them that their accounts are being sent to collections. These letters have reportedly gone out to millions of borrowers, threatening their credit ratings and warning that their wages could be garnished by the federal government if payments are not made.
Starting today, May 5, the Department is resuming collections to protect taxpayers from shouldering the cost of student loans. Federal student loans are financed by the American people and must be paid back. https://t.co/yQmP12Tojy pic.twitter.com/BIlSBPLHhB
— U.S. Department of Education (@usedgov) May 5, 2025
What does it mean to default on your student loans?
A borrower is considered in default if they have not made a payment on their student loan for more than 270 days. Once in default, their wages can be garnished—a policy the Trump administration has said it will begin enforcing. The DoE defended the decision, stating that it “protects taxpayers from shouldering the cost of federal student loans that borrowers willingly undertook to finance their postsecondary education.” The DoE reported that 5 million borrowers have been marked for collections and will be informed by the agency on how they can “get out of default.”
How many students have defaulted?
As many as 10 million borrowers could be in default “in a few months,” according to a DoE report from late April. This figure represents a staggering 25 percent of student loans held by the government, highlighting the immense strain these actions could place on workers already struggling with high prices, slow wage growth, and the potential for renewed inflation or even a recession due to tariffs.
Economists have also warned that a sudden drop in consumer spending—caused by borrowers allocating more of their income to debt repayment—could weaken the economy. In a 2024 blog post, the Peter G. Peterson Foundation cited studies showing that student debt repayment could reduce consumer spending and limit the ability to save for retirement. Consumer spending is expected to fall as a result of tariffs, which could lead to higher prices and thus shrink total demand. The Personal savings rate in the US dropped below 4 percent in March; In March 2019, the figure stood at 7.9 percent. Another study noted that higher delinquency rates could make it harder for some borrowers to access credit in the future.
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The move by the Trump administration, which could affect millions of borrowers, comes at a turbulent time for the US economy. In 2023, when the economy was still under inflationary pressure, the consulting firm RMS projected repayment to create a “modest drag on inflation.” However, strict repayment is now taking place when there are other “drags” on the economy, which could be exacerbated by a decrease in consumer spending as borrowers look to get out of default.
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