The state of student loans as the Trump administration begins debt collection
The library on the campus of Minnesota State University, Mankato.
Photo courtesy of Minnesota State University, Mankato
Go Deeper.
Create an account or log in to save stories.
Like this?
Thanks for liking this story! We have added it to a list of your favorite stories.
The U.S. Department of Education announced Monday it will begin collecting student loans that are in default starting in May.
According to data from The New York Federal Reserve, Minnesota has about 844,000 student loan borrowers, for a total balance of $28 billion. Of those borrowers, about one percent are delinquent. In an uncertain economy, there are many others worried about paying off their debt.
April Sanderson is a student loan financial counselor with Lutheran Social Service of Minnesota and is based in Virginia, Minn. She joined Minnesota Now to talk about the status of federal student loans.
Use the audio player above to listen to the full conversation.
Subscribe to the Minnesota Now podcast on Apple Podcasts, Spotify or wherever you get your podcasts.
We attempt to make transcripts for Minnesota Now available the next business day after a broadcast. When ready they will appear here.
Turn Up Your Support
MPR News helps you turn down the noise and build shared understanding. Turn up your support for this public resource and keep trusted journalism accessible to all.
Audio transcript
EMILY BRIGHT: Our top story on Minnesota Now, the Education Department announced it will begin collecting student loans that are in default starting next month. According to data from the New York Federal Reserve, Minnesota has about 844,000 student loan borrowers for a total balance of $28 billion. Of those borrowers, about 1% are delinquent. But in an uncertain economy, there are many others worried about paying off their debt. Joining us now to talk about the status of federal student loans is April Sanderson. She is a student loan financial counselor with Lutheran Social Services and is based in Virginia, Minnesota. And she joins us now. Hello, April.
APRIL SANDERSON: Hello, Emily.
EMILY BRIGHT: Well, thank you for being here. Could you just tell me, what is your job as a student loan counselor?
APRIL SANDERSON: Yeah, so as a student loan counselor, I help student loan borrowers that are either confused or struggling with their student loans. So we help them see what type of loans they have, what those options are, and how they fit into their overall financial situation. So we don't just say, here's your loan payments. We also say, here's what your budget looks like. So here's how those loan payments are going to impact you month to month.
EMILY BRIGHT: Well, you have your work cut out for you, because since COVID, there have been so many changes to student loan programs. There have been pauses and lawsuits. Help us understand the ground beneath our feet. Where do things stand now?
APRIL SANDERSON: Yeah, as of right now, everybody is in repayment except for those borrowers that are in the Saving on a Valuable Education or the Save payment plan. Due to a lawsuit, borrowers that are under that payment plan or have applied for that payment plan within the last near year have been put into a forbearance. So those are the only people not making payments at this time or don't have payments due at this time, I should say.
EMILY BRIGHT: Understood. What does it mean to default on your student loan?
APRIL SANDERSON: Yeah, so defaulting on a student loan isn't just I'm behind on my student loans. There's delinquency, which is 270 days of not making a payment. And default happens at 271 days. So it does take a while to go from delinquency to default. But once you're in default, the action and the collections come pretty swiftly.
EMILY BRIGHT: So that's like nine months. That's about a school year. What happens when you do default?
APRIL SANDERSON: So as soon as you go into default, they're going to say the whole balance is due. So yeah, which can be very scary. And they're going to say you no longer qualify for any forbearances or deferments. Typically, they tack on some collection fees and then they send it to a collection agency within the Department of Education. So it's still a collection agency, but it's under the guise of it's with the government.
And as a result of that, they can do very hefty collection actions. They can start garnishing wages without any court action because they're the government. They can levy bank accounts. They can offset or capture tax refunds. They can revoke professional licenses. Yeah, it's a lot.
EMILY BRIGHT: It's hard to earn money if you've had your professional license revoked.
APRIL SANDERSON: Exactly.
EMILY BRIGHT: So I mentioned at the start of this that data shows only 1% of student loan borrowers in Minnesota have defaulted. But what are you hearing from people who are close or who are worried about this situation?
APRIL SANDERSON: Well, it is very difficult, because we've just come out of the COVID payment pause where there was over three years of not having payments. And then from October of 2023 to October of 2024, there was what the Biden administration called the on ramp, where even if you didn't make payments, it wouldn't impact your credit score. So a lot of people weren't seeing negative consequences to not paying. And so a lot of people, it's just kind of been out of sight, out of mind for them. And now, if they're coming to us for not student loan counseling and we pull their credit report and we see that they're delinquent, it's kind of hitting them like a ton of bricks at exactly the wrong time.
EMILY BRIGHT: Oh, I can just imagine. What's the biggest concern you're hearing right now?
APRIL SANDERSON: How they're going to make payments is the biggest concern, because the most affordable payment plan was the Save payment plan, and that is no longer an option for people. And the other income driven repayment plans have been a challenge, because they had taken the application off the website. They've put it back on the website, but it wasn't really working. And then they took it off and now they have it back on. So people don't really know how to get into the payment plan, or if they're even going to be able to get into a payment plan. They can now, but it's been a challenge.
EMILY BRIGHT: Yeah, when you feel like you don't even have the resources to come up with the solution to even find the website. So how do you go about helping people who are close to defaulting? What plans do you set up?
APRIL SANDERSON: Yeah, so first and foremost, it's calling the servicer, which we will try to do with a borrower. However, servicer staff has been cut. And so some of those hold times are very, very long. So if we can't connect with the servicer with the borrower, we tell them try it on your own. Beware it's going to be a long hold time. Find something else to do while you're on hold. Take a walk. Pet your dog. Whatever self-care you need to do, because it is stressful.
EMILY BRIGHT: Yeah.
APRIL SANDERSON: And then once you get a hold of them, make sure that you can get into a forbearance, because a forbearance can be backdated until you fell behind. And that in and of itself can catch you up so that you don't have to pay this large past due balance of months and months. You can just get that forbearance applied, get caught up, and then either start moving forward with the payment plan that you were on, or change your payment plan to an income driven repayment plan that may be more affordable.
EMILY BRIGHT: So I imagine you're going into that call with those long hold times with your clear list of questions because you're not calling back.
APRIL SANDERSON: Exactly.
EMILY BRIGHT: So, April, if you don't repay your student loans or you default, what kind of ripple effects are we talking about?
APRIL SANDERSON: Well, outside of the possibility of them garnishing wages, levying tax refunds, that kind of stuff, it follows you. It impacts your credit. And because it's a debt that doesn't go away until death do you part, it follows you forever and ever. And so it trashes your credit, which makes it very hard for you to accomplish a lot of things that need credit. Buying a car, buying a home, et cetera.
It can also make it very difficult if you are trying to get any kind of federal assistance. So even if you have pristine credit, otherwise you have these defaulted student loans, you don't qualify for a VA mortgage, a Fannie Mae, Freddie Mac, those kind of things. So it hurts you in that way. And then if you were to retire, they can also capture a portion of your Social Security retirement. They can garnish Social Security retirement because it's money coming from the federal government that's owed to the federal government. So yeah, it's awful.
EMILY BRIGHT: So in our last 30 seconds, what else do you want people to know?
APRIL SANDERSON: That it's not too late. Up until the 270th day, you can get a forbearance to get caught up, start moving forward. Even if you are in default, you can get out of default. There are options to get out of default. Those options may not be ideal, but come see LSS Financial Counseling. We can help you weigh out what those options are and walk you through the process.
EMILY BRIGHT: And that was April Sanderson, a student loan financial counselor with Lutheran Social Services. April, thank you.
APRIL SANDERSON: Thank you, Emily.
APRIL SANDERSON: Hello, Emily.
EMILY BRIGHT: Well, thank you for being here. Could you just tell me, what is your job as a student loan counselor?
APRIL SANDERSON: Yeah, so as a student loan counselor, I help student loan borrowers that are either confused or struggling with their student loans. So we help them see what type of loans they have, what those options are, and how they fit into their overall financial situation. So we don't just say, here's your loan payments. We also say, here's what your budget looks like. So here's how those loan payments are going to impact you month to month.
EMILY BRIGHT: Well, you have your work cut out for you, because since COVID, there have been so many changes to student loan programs. There have been pauses and lawsuits. Help us understand the ground beneath our feet. Where do things stand now?
APRIL SANDERSON: Yeah, as of right now, everybody is in repayment except for those borrowers that are in the Saving on a Valuable Education or the Save payment plan. Due to a lawsuit, borrowers that are under that payment plan or have applied for that payment plan within the last near year have been put into a forbearance. So those are the only people not making payments at this time or don't have payments due at this time, I should say.
EMILY BRIGHT: Understood. What does it mean to default on your student loan?
APRIL SANDERSON: Yeah, so defaulting on a student loan isn't just I'm behind on my student loans. There's delinquency, which is 270 days of not making a payment. And default happens at 271 days. So it does take a while to go from delinquency to default. But once you're in default, the action and the collections come pretty swiftly.
EMILY BRIGHT: So that's like nine months. That's about a school year. What happens when you do default?
APRIL SANDERSON: So as soon as you go into default, they're going to say the whole balance is due. So yeah, which can be very scary. And they're going to say you no longer qualify for any forbearances or deferments. Typically, they tack on some collection fees and then they send it to a collection agency within the Department of Education. So it's still a collection agency, but it's under the guise of it's with the government.
And as a result of that, they can do very hefty collection actions. They can start garnishing wages without any court action because they're the government. They can levy bank accounts. They can offset or capture tax refunds. They can revoke professional licenses. Yeah, it's a lot.
EMILY BRIGHT: It's hard to earn money if you've had your professional license revoked.
APRIL SANDERSON: Exactly.
EMILY BRIGHT: So I mentioned at the start of this that data shows only 1% of student loan borrowers in Minnesota have defaulted. But what are you hearing from people who are close or who are worried about this situation?
APRIL SANDERSON: Well, it is very difficult, because we've just come out of the COVID payment pause where there was over three years of not having payments. And then from October of 2023 to October of 2024, there was what the Biden administration called the on ramp, where even if you didn't make payments, it wouldn't impact your credit score. So a lot of people weren't seeing negative consequences to not paying. And so a lot of people, it's just kind of been out of sight, out of mind for them. And now, if they're coming to us for not student loan counseling and we pull their credit report and we see that they're delinquent, it's kind of hitting them like a ton of bricks at exactly the wrong time.
EMILY BRIGHT: Oh, I can just imagine. What's the biggest concern you're hearing right now?
APRIL SANDERSON: How they're going to make payments is the biggest concern, because the most affordable payment plan was the Save payment plan, and that is no longer an option for people. And the other income driven repayment plans have been a challenge, because they had taken the application off the website. They've put it back on the website, but it wasn't really working. And then they took it off and now they have it back on. So people don't really know how to get into the payment plan, or if they're even going to be able to get into a payment plan. They can now, but it's been a challenge.
EMILY BRIGHT: Yeah, when you feel like you don't even have the resources to come up with the solution to even find the website. So how do you go about helping people who are close to defaulting? What plans do you set up?
APRIL SANDERSON: Yeah, so first and foremost, it's calling the servicer, which we will try to do with a borrower. However, servicer staff has been cut. And so some of those hold times are very, very long. So if we can't connect with the servicer with the borrower, we tell them try it on your own. Beware it's going to be a long hold time. Find something else to do while you're on hold. Take a walk. Pet your dog. Whatever self-care you need to do, because it is stressful.
EMILY BRIGHT: Yeah.
APRIL SANDERSON: And then once you get a hold of them, make sure that you can get into a forbearance, because a forbearance can be backdated until you fell behind. And that in and of itself can catch you up so that you don't have to pay this large past due balance of months and months. You can just get that forbearance applied, get caught up, and then either start moving forward with the payment plan that you were on, or change your payment plan to an income driven repayment plan that may be more affordable.
EMILY BRIGHT: So I imagine you're going into that call with those long hold times with your clear list of questions because you're not calling back.
APRIL SANDERSON: Exactly.
EMILY BRIGHT: So, April, if you don't repay your student loans or you default, what kind of ripple effects are we talking about?
APRIL SANDERSON: Well, outside of the possibility of them garnishing wages, levying tax refunds, that kind of stuff, it follows you. It impacts your credit. And because it's a debt that doesn't go away until death do you part, it follows you forever and ever. And so it trashes your credit, which makes it very hard for you to accomplish a lot of things that need credit. Buying a car, buying a home, et cetera.
It can also make it very difficult if you are trying to get any kind of federal assistance. So even if you have pristine credit, otherwise you have these defaulted student loans, you don't qualify for a VA mortgage, a Fannie Mae, Freddie Mac, those kind of things. So it hurts you in that way. And then if you were to retire, they can also capture a portion of your Social Security retirement. They can garnish Social Security retirement because it's money coming from the federal government that's owed to the federal government. So yeah, it's awful.
EMILY BRIGHT: So in our last 30 seconds, what else do you want people to know?
APRIL SANDERSON: That it's not too late. Up until the 270th day, you can get a forbearance to get caught up, start moving forward. Even if you are in default, you can get out of default. There are options to get out of default. Those options may not be ideal, but come see LSS Financial Counseling. We can help you weigh out what those options are and walk you through the process.
EMILY BRIGHT: And that was April Sanderson, a student loan financial counselor with Lutheran Social Services. April, thank you.
APRIL SANDERSON: Thank you, Emily.
Download transcript (PDF)
Transcription services provided by 3Play Media.