Despite departmental restructuring, the Trump administration has resumed collecting student loans

Despite departmental restructuring, the Trump administration has resumed collecting student loans.

The U.S. Department of Education declared on April 21, 2025, that it will begin collecting on federal student loans that had fallen into default on May 5, 2025. About 5.3 million borrowers who are already in default and an additional 4 million who are seriously behind on their payments would be impacted by this action. A five-year halt that was started during the COVID-19 epidemic has ended with this decision.

Commencement of Collections

Involuntary methods like wage garnishment and the Treasury Offset Program, which has the authority to confiscate federal and state payments including Social Security benefits and tax returns, are part of the restart of collections. For non-compliant borrowers, the Department of Education's Office of Federal Student Aid (FSA) aims to start wage garnishment procedures by the summer and will email defaulters over the course of the following two weeks.

Political Background

In her defense of the ruling, Education Secretary Linda McMahon emphasized the need for borrowers to restart payments and the protection of taxpayers. She promised that assistance in managing payments will be provided by the FSA. But the action has come under fire from a number of sources. The Student Borrower Protection Center criticized the start of collections, emphasizing the mounting prices and unstable economy that Americans are currently facing.

Department Reorganization

At the same time, President Donald Trump has begun a major reorganization of the Department of Education. He said on March 21, 2025, that the federal student loan portfolio, which oversees over $1.6 trillion in loans for about 43 million students, will be transferred to the Small Business Administration (SBA), under the direction of Kelly Loeffler. With its operations being transferred to other federal agencies, this decision is a part of a larger push to dissolve the Department of Education.

Consequences for Debtors

There are questions over the future of student loan management given that the SBA has taken over oversight of student loans. The SBA's ability to manage the increased obligations may be impacted by its intentions to eliminate around 2,700 jobs, or roughly 43% of its personnel. For borrowers hoping for reduced payments and ultimate loan forgiveness, the elimination of online applications for important student loan schemes, such income-driven repayment and federal Direct loan consolidation, has also increased confusion.​

Challenges in Law and Legislation

Legal difficulties have been raised by the Department of Education's reorganization and the SBA's assumption of responsibility for student loan supervision. The Department of Education was sued by the American Federation of Teachers (AFT) for allegedly illegally removing access to income-driven student loan repayment options. According to the AFT, these practices infringe upon borrowers' rights and make it more difficult for them to successfully manage their student loan debt.

Gazing Ahead

Borrowers face an unclear future when student loan collections resume and the Department of Education undergoes significant changes. A complex and difficult environment has been created for those attempting to manage their student loan debt as a result of the SBA taking over monitoring of student loans, staffing reductions, and the closure of crucial online application portals. The political discussions and legal issues underlying these developments imply that the management of federal student loans will continue to change over the next few months.