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Resumption of Student Loan Collections Raises Economic Concerns

The U.S. is set to resume collections on defaulted student loans, impacting millions and risking economic slowdown, experts warn.

Overview

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Starting May 5, the U.S. Department of Education will resume collections on defaulted federal student loans, affecting 5.3 million Americans. This decision raises economic concerns as experts warn it could contribute to an economic slowdown, particularly given the precarious economic situation. While the Trump administration emphasizes borrower responsibility and asserts taxpayers shouldn't bear the burden, economists indicate that wage garnishments and reduced consumer spending could exacerbate pressures on the economy. Additionally, almost 4 million borrowers are in late-stage delinquency, increasing potential defaults. Secretary Linda McMahon highlighted that assistance will be available, but borrowers are urged to act swiftly.

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FAQ

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Approximately 5.3 million Americans with defaulted federal student loans will be affected when collections resume on May 5, 2025.

Experts warn that wage garnishments and reduced consumer spending due to student loan collections could contribute to an economic slowdown, as every dollar paid towards loans is a dollar not circulated in the economy.

The Department of Education will resume wage garnishments, withholding of tax refunds, and deductions from federal benefits such as Social Security payments after a 30-day warning period.

Yes, nearly 4 million borrowers are in late-stage delinquency (91 to 180 days late), increasing the risk that they could soon default on their loans.

The Department of Education, led by Secretary Linda McMahon, has stated that assistance will be available to borrowers, but they are urged to act swiftly to address their loan situations.

History

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