On its way out the door, the Department of Education has published a memo outlining the steps that the new administration should take to prevent individuals from defaulting on their student loan payments and the importance of continuing the actions that have been taken by the outgoing administration.
Why it matters: Federal student loan borrowers will face penalties and consequences for missed payments in 2025 for the first time in five years. The memo emphasizes the critical need to sustain recent efforts aimed at helping borrowers avoid default and stay on track with their repayment obligations.
By the numbers:
- The number of borrowers in default has decreased by 30% compared to pre-pandemic levels, representing approximately 5.5 million borrowers.
- The Department’s on-ramp period, which protected borrowers from default consequences, ended in October 2024, with full penalties resuming in 2025.
- Treasury offsets, including the seizure of tax refunds and Social Security benefits, are set to begin as early as July 2025.
Key initiatives highlighted in the memo:
- Preventing Default:
- Expanding access to Income-Driven Repayment (IDR) plans, allowing borrowers to authorize federal tax information (FTI) sharing for automatic enrollment.
- Strengthening loan servicing accountability by implementing performance-based incentives and financial disincentives for servicers.
- Enhancing outreach efforts by working with schools and federal partners to inform borrowers about available relief options.
- Providing Affordable Pathways for Borrowers in Default:
- Introducing new options for borrowers in default to enroll in IDR plans and access loan forgiveness.
- Increasing the amount of Social Security benefits protected from offsets to 150% of the federal poverty guideline.
- Eliminating most collection fees to ensure more of borrowers’ payments go toward reducing their balances.
- Enhancing Communication and Transparency:
- Improving clarity in borrower communications to ensure they understand their repayment options and consequences of default.
- Engaging in behavioral science-informed outreach to encourage proactive borrower actions.
- Coordinating with stakeholders to amplify messaging and provide borrower support through various touchpoints.
What’s next: The memo outlines a roadmap for 2025, detailing key milestones such as the resumption of credit reporting for defaulted loans by December 2024 and the start of wage garnishments in October 2025. The Department stresses the importance of continuing outreach efforts and maintaining the momentum gained over the past few years.
The bottom line: As student loan repayment penalties resume, the Department of Education is urging the incoming administration to stay the course on initiatives that support borrowers and minimize defaults, ensuring a smooth transition and continued borrower success in repayment.
