Janice Lozano
Student loan debt is a significant issue in the United States, with many borrowers struggling to repay their loans and facing wage garnishments and other penalties for non-payment. While the federal government offers various repayment assistance programs, such as subsidized loans where the government pays the interest while the student is in school, and loan forgiveness programs, there are still concerns that these efforts are not enough, and that some borrowers may never be able to fully repay their loans. The Trump administration's pause on student loan repayment requirements during the pandemic provided temporary relief, but with collections resuming, borrowers are facing uncertainty and potential financial hardship.
| Characteristics | Values |
|---|---|
| Loan repayment programs | The government offers student loan repayment programs |
| Interest payments | The government pays the interest on subsidized loans while the student is in school and during the grace period |
| Loan forgiveness | The Biden administration's policies were seen as forgiving by some |
| Loan collection | The government may garnish wages to collect overdue loan payments |
| Loan deferment | The Trump administration paused loan repayment requirements during the pandemic |
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What You'll Learn
Loan repayment programs
The US Department of Education acts as the lender for Federal Direct Student Loans, which include Federal Direct PLUS loans and Federal Direct Stafford loans. The government pays the interest on subsidized loans while the student is in school, during the 6-month grace period, and during periods of authorized deferment. Unsubsidized loans, on the other hand, accrue interest that the student is responsible for paying.
Federal agencies are authorized to implement loan repayment programs as incentives for recruiting and retaining highly qualified personnel. These programs often have specific eligibility requirements, such as employees serving in certain appointments or having a disadvantaged background. Agencies must report annually to the US Office of Personnel Management (OPM) on their use of student loan repayment authority, including the number of employees who received benefits and the cost to the Federal Government.
One example of a loan repayment program is the NHSC Loan Repayment Program, which offers participants the opportunity to apply for continuation contracts to pay off health professional education debt. Applicants for this program must be US citizens or nationals, providers in eligible disciplines, and have qualified student loan debt.
Another example is the Attorney Student Loan Repayment Program offered by the Department of Justice. Applicants for this program are required to submit signed service agreements and consent to the disclosure of financial information. Annual renewals and updated account statements are also necessary to ensure proper distribution of funds to qualifying loans.
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Loan forgiveness
The US government offers student loan repayment assistance to employees under certain conditions. For instance, employees serving in excepted appointments with non-competitive conversion to term, career, or career-conditional appointments are eligible for student loan repayment assistance. However, eligibility for student loan repayment benefits hinges on the employee maintaining an acceptable level of performance, as outlined in 5 CFR 430.208(d). If an employee fails to meet the required performance level or violates the terms of their service agreement, they may be required to reimburse the paying agency for the amount of loan repayment benefits received.
There are different types of student loans, and the government's role varies for each. Federal Direct Student Loans are lent directly by the US Department of Education and include Federal Direct PLUS loans and Federal Direct Stafford loans. In the case of Subsidized Loans, the government pays the interest while the student is in school, during the 6-month grace period, and during authorised deferment periods. On the other hand, Unsubsidized Loans require the student to pay the interest accrued during these periods.
The Federal Family Education Loan Program is another type of loan where loans are insured by the Department of Education but are issued by private entities such as banks or credit unions. Agencies that provide student loan repayment benefits are required to report annually to the US Office of Personnel Management (OPM). These reports include details such as the number of employees receiving benefits, their job classifications, and the cost to the Federal Government.
It's important to note that periods of leave without pay or other non-pay statuses do not count toward the completion of the required service period for loan repayment programs. Employees who take such leaves must have their service completion date extended accordingly. However, absences due to uniformed service or compensable injury are considered creditable toward the required service period.
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Interest accrual
The accrual of interest on student loans depends on the type of loan—federal or private, subsidized or unsubsidized. Federal loans are those where the US Department of Education is the lender, while private loans are issued by a bank, credit union, or other lender.
Subsidized Loans
The US government pays the interest on subsidized loans while the student is in school, during the 6-month grace period, and during periods of authorized deferment. Subsidized federal loans do not accrue interest while the student is in school or during deferment periods. Deferment can be granted in cases of qualifying circumstances, such as returning to school, unemployment, economic hardship, or active military duty.
Unsubsidized Loans
With unsubsidized loans, the student is responsible for paying the interest accrued while they are in school, during the grace period, and during authorized periods of deferment. Interest on private student loans may also be deferred, but it is added to the principal after the pause.
Student loans typically generate interest daily. The annual percentage rate (APR) is divided by 365 days to determine a daily interest rate, and interest is charged each day on the total amount owed. This interest is added to the total balance, and interest is then charged on the new balance—resulting in "interest on interest" until the loan is paid off.
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Wage garnishment
The US Department of Education can garnish up to 15% of defaulted borrowers' disposable income and federal benefits, as well as their entire federal tax refund. Wage garnishment is when an employer withholds money from an employee's earnings because of a court or government order. This is done to repay a defaulted loan or cover a debt the employee owes. In the case of student loans, the US Department of Education can garnish wages for those who have defaulted on their federal student loans. This means that if a borrower falls behind on their student loan payments, the Department of Education can take legal action to withhold a portion of their wages to recover the debt.
The Education Debt Consumer Assistance Program's assistant director, Nancy Nierman, noted that withholding income in a high-cost-of-living environment can make it challenging for individuals to cover essential expenses, forcing them to make difficult choices. This is particularly true for borrowers who genuinely cannot afford to pay off their student loans, as pointed out by James Kvaal, the former US undersecretary of education. Additionally, wage garnishment can impact older borrowers who are in default on their federal student loans and receiving Social Security benefits, further straining their financial situation.
While the US Department of Education has the authority to garnish wages for defaulted student loans, it is important to note that there are legal limits to how much can be withheld. There are also options for borrowers to get current on their payments and avoid wage garnishment, such as enrolling in a repayment plan like the Saving on a Valuable Education (SAVE) program offered by the Biden administration. However, it is crucial for borrowers to seek guidance and stay informed about their loan management to prevent falling into default and facing the financial challenges posed by wage garnishment.
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Trump administration changes
The Trump administration has brought about several changes to the student loan system, impacting millions of borrowers.
Firstly, Trump has expressed his intention to move student loans away from the Department of Education, suggesting they should instead be managed by the Treasury Department, the Small Business Administration (SBA), or the Commerce Department. Trump has indicated a preference for the SBA, stating that the former senator from Georgia and new administrator of the SBA, Kelly Loeffler, has expressed interest in the idea.
Secondly, the Trump administration has suspended student loan forgiveness for borrowers enrolled in the Income-Based Repayment (IBR) plan, creating uncertainty and panic among borrowers. This pause is due to system updates and legal actions against other forgiveness plans, impacting around 2 million people.
Thirdly, Trump signed an Executive Order entitled "Restoring Public Service Loan Forgiveness," which limits eligibility for the Public Service Loan Forgiveness Program (PSLF). This program previously allowed government workers, such as teachers or police, and nonprofit employees to receive loan forgiveness after making consecutive payments for 10 years.
Additionally, the Trump administration has ended the Biden-era SAVE (Saving on a Valuable Education) plan, which offered a 5% payment cap for undergraduate loans. The administration has also indicated its intention to roll back most forgiveness policies and make forgiveness harder to access.
Furthermore, the Trump administration has introduced the One Big Beautiful Bill Act, which includes a provision to exempt employer student loan benefits from taxation, with adjustments for inflation starting in 2026. This change is expected to encourage more companies to offer student loan reimbursement benefits to their employees. However, the new federal student loan repayment system may cost some borrowers more, despite being simpler.
Finally, the Trump administration has restarted collections on defaulted student loan debt and plans to restart wage garnishment, which is unwelcome news for borrowers.
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Frequently asked questions
No, the government does not pay your student loans. However, if you have a subsidized loan, the U.S. government pays the interest on the loan while you are in school, during the 6-month grace period, and during periods of authorized deferment.
A subsidized loan is a federal loan where the government pays the interest on the loan while the student is in school, during the 6-month grace period after graduation, and during periods of authorized deferment.
With an unsubsidized loan, the student is responsible for paying the interest accrued while they are in school, during the 6-month grace period, and during authorized periods of deferment.
It is possible to get your student loans forgiven under certain circumstances. For example, during the pandemic, the Trump administration paused all student loan repayment requirements to provide economic relief.
Yes, you can make one-off payments toward your student loan without signing in to your account. You can also make payments toward someone else's loan.
