Five years ago, as death, panic, and viruses were spreading across the globe, the Trump administration announced it was halting collections of college debt. At the time, almost everyone agreed this was a good idea. “It is going to make a lot of students happy,” President Donald Trump remarked.
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Kevin Carey is the vice president for Education Policy and knowledge management at New America and directs the Education Policy program.
This week, an entire Biden administration later, Trump’s Department of Education began throwing the full force of the federal government against people who had defaulted on their student loans. Employers will be contacted, wages garnished, and debt collectors deployed.
The move came a week after House Republicans released plans for a massive overhaul of student financial aid policy. Their bill would reduce the number of students eligible for need-based federal financial aid, make it harder for students to pay for tuition, books and living expenses, increase monthly loan payments for millions of borrowers, and make some people wait as much as 20 years longer to have their debts forgiven. Student happiness will no longer be a consideration.
Sometimes, members of Congress propose radical changes they know have little chance of becoming law. This isn’t one of those times. The Republican plan is part of the “big, beautiful” budget reconciliation bill, some version of which is likely to pass Congress before the year is out.
The much-debated dream of broad-scale debt relief and friendly student loans is fading. This is the beginning of a harsh new era for the roughly 43 million people who hold almost $1.7 trillion in federal student loans. For people who are struggling to make ends meet and are most vulnerable to Trump’s government service cuts and the economic devastation of his reckless trade policies, the timing couldn’t be worse.
The winding, lawsuit-filled history of student debt relief
Trump’s initial move to suspend loan payments in 2020 was ratified by Congress a few weeks later in the CARES Act, which passed the House with a 419-6 vote. That was the last time Democrats and Republicans agreed on the issue.
Loans were hotly debated during the Democratic primary that year. After Joe Biden’s November victory, influential party figures like Sen. Elizabeth Warren pressed him to unilaterally forgive some or all outstanding student debt. Biden was reticent — he preferred making a deal with Congress — but over time, progressive activists convinced him to launch an ambitious plan to wipe $10,000 off the balance of nearly every federal loan, and another $10,000 from debt held by low-income students. It was a historic opportunity, they argued, to help close the racial wealth gap and give relief to people who had been victimized by too-expensive colleges.
Biden also untangled a knot of existing loan forgiveness programs designed to help people including public servants, students with disabilities, and people who were defrauded by their college. Those actions alone resulted in 5.3 million students having $188 billion in loans wiped away.
A group of Republican attorneys general sued over the $10,000 plan, and the Supreme Court obliterated the program based on its newly fabricated “major questions doctrine.” Biden pressed forward with more loan forgiveness schemes.
The most important was the SAVE plan, which was designed for (but not limited to) community college students. It lowered students’ monthly payments from 10 percent of their discretionary income to as little as 5 percent, and forgave any outstanding debts in as soon as 10 years for students with loans smaller than $12,000 (instead of 20 years). Almost 8 million people enrolled in SAVE.
As for student loan repayments, Biden extended the collections pause all the way until October 2023, when he was forced to restart the system by Republicans. After a one-year “on-ramp” to payment, the clock began ticking last October.
The Department of Education has since told the servicing companies that manage the loans to start reporting non-paying borrowers to credit agencies. In just the last three months, millions of borrowers have suddenly seen their credit scores dip. This week marked the beginning of the federal government’s drive to start collecting on loans that were already in default before the pandemic.
The plan that could devastate the financial aid landscape
College students and people with loans aren’t just facing harsh new debt collection tactics from the Trump administration. The president’s Republican allies in states and Congress are working to make college loan policy far less student-friendly in the future.
Another group of Republican attorneys general sued to stop SAVE, and the program is currently held up in federal court. (During this time, everyone in the program has had their loan put in suspended animation, meaning no interest has accrued and they didn’t owe payments.) The House Republican plan would reverse its efforts, eliminating a provision that set loan payments to $0 for low-income borrowers, and instead increasing payments to up to 15 percent of income for current borrowers and 10 percent for future borrowers. It would also deny forgiveness until 30 years of payments — that is, most of a borrower’s working life.
Those who do borrow will face repayment on much harsher terms.
Biden’s Department of Education wrote tough new rules designed to prevent students, particularly members of the military, from being defrauded in the first place. One rule cuts off federal financial aid to college programs that load up students with too much debt and don’t prepare them to get jobs that pay an adequate wage. The Republican plan would repeal virtually all of those regulations. It would also prevent future education secretaries from creating new loan forgiveness plans.
This means that, for students entering college or graduate school for the first time, the financial aid landscape could be grim. The Republican plan puts new limits on how much students in high-cost areas or in high-cost programs can borrow for tuition, books, room and board, even as moderate-income students will no longer be eligible for federal grants. Borrowing for graduate and professional school could be capped in a way that would make it much more difficult for lower-income students to pursue careers in medicine and law.
Those who do borrow will face repayment on much harsher terms. And with most of the guardrails protecting students from predatory for-profit colleges lifted, it’s more likely that they will be saddled with loans for degrees that have little or no value in the job market — if they manage to graduate at all.
A sea change
For the last five years, many borrowers held out hope that they could move forward in their lives without the yoke of student debt. Debt forgiveness plans were announced and congratulatory letters mailed, only to have the courts and electoral politics pull those promises away. Now the Department of Education has declared, “There will not be any mass loan forgiveness.” As long as Trump is president, this is certainly true.
Borrowers who took advantage of the five-year hiatus will need to get back in the habit of loan repayment. So will recent graduates who haven’t made payments before. For those in financial difficulty, even less-generous payments plans are almost certainly a better option than default.
If the loan collection system cracks and falters under the strain, the government won’t have people with enough expertise to step in and fix it.
One student loan servicer reports that only 38 percent of borrowers are up-to-date and actively making payments on their loans as of February, down from 60 percent before the pandemic. This is partially a problem of Republicans’ own making — millions of borrowers have had their payments suspended while the SAVE lawsuit plays out in court. But there is no doubt that millions of people are at serious risk of defaulting on their student debt and suffering serious financial consequences.
Restarting a collection system that was never designed to be turned off in the first place will be an enormous challenge for the Education Department and its contractors. Normally, the Federal Student Aid office (FSA) in the Education Department would have experts in place to help manage the vast, complex student loan system during a once-in-a-lifetime challenge. But Education Secretary Linda McMahon and Elon Musk’s Department of Government Efficiency minions gutted FSA during their recent purge of department employees. That means if the loan collection system cracks and falters under the strain, the government won’t have people with enough expertise to step in and fix it.
A wave of new student loan defaults later this year could dovetail in the worst possible way with a self-induced tariff recession, restricting access to credit at exactly the same time people are losing their jobs. College is supposed to be a path to economic mobility and security. The Trump administration and the Republican-controlled Congress seem determined to make that road as narrow, treacherous, and obstacle-strewn as it possibly can.
