Former education official warns defaulted student loan borrowers will be “hit with a freight train”

Beginning on Monday May 5, the Education Department will resume collections on defaulted student loans for the first time in five …

Former education official warns defaulted student loan borrowers will be “hit with a freight train”/a>

Beginning Monday, May 5th, the education department will resume collections on defaulted student loans for the first time in 5 years. This will include reporting defaults to credit bureaus. The department plans to collect payments through the Treasury’s offset program, which will allow officials to withhold things like tax refunds, federal salaries, and social security benefits. The move could directly affect more than 5 million Americans who have defaulted on their loans since federal payments were paused for CO 19 in 2020. The education department estimates another 4 million borrowers could default in the coming months. Wayne Johnson joins us now. He’s the former chief operating officer at the education department’s office of federal student aid. Thank you so much for being with us. Education Secretary Linda McMahon says collecting these payments is essential both for borrowers financial health and for the nation’s economy. What could the effects both intended and unintended be? Well, the intended effect is to aggressively go after the $1.6 trillion that uh student loan borrowers owe. Uh the unintended consequence is that um 5 million people starting next week are going to get hit with a freight train. Another five million by the end by November. So we’ll be up to 10 million and this time next year there’ll be 20 million people being uh subject to Treasury offset which includes uh garnishing wages and which includes uh taking money out of people’s social security checks which means uh seizing their tax refund checks. So there’s uh quite a bit of u let’s let’s say personal financial impact that’s about to happen. uh you know, President uh Trump certainly took the right course of action by making people aware that after five years, you’ve got to start repaying or meeting your obligations under your loans. Uh however, uh the government is not prepared to be to deal with the fact that many many people want to repay. They just don’t know how to make the contact and establish their uh their you know improved status. But so the bottom line is uh we got a whole bunch of people right now that are running scared. uh they’ve been uh not having to make any payments, not even have to be in contact, not even have to acknowledge that they exist for five years and now uh they’re being told that if you um and many of them aren’t by the way about 75% of the people are not making any payments at all and can’t even be contacted. So the net result is we’re about to see a financial um impact like I don’t think we’ve seen in a long time at a personal level. You said the government is not prepared. Is that because of cuts to the Department of Education? Can you elaborate? Has nothing to do with the cuts at the Department of Education. The Office of Federal Student Aid, of which I was the chief operating officer, administers contracts. And really, what it really boils down to is do the contractors, uh, there are six servicesers. There’s five other organizations that support that. Do they have the people in place to handle the calls? And I got reports this earlier this week that people were waiting 10 hours and after 10 hours more than 50% of those people were still hanging up. So uh the administration did a fantastic job of saying hey you got to try and reach people try and reach the department and and take action. Uh but the servicesers are just not prepared and the um they don’t even have the capacity and it’ll take a long long long time for the reach capacity. How frustrating. Back in 2019, before these collections were even initially paused, you endorsed the idea of mass student loan forgiveness, calling the entire system fundamentally broken. What led you to that conclusion then? And do you still support that today? I I support that. We’ve got an incredibly flawed and u it’s an abomination hiding in plain sight. the federal student loan system. Uh our colleges and universities uh use cost of attendance price setting to basically exploit the amount of money that they are almost demanding that students take down from the government. Uh it’s predatory lending in terms of the terms and conditions of the loan. So, uh, my declaration at that point in time was because I was doing a fantastic job with my team of making the whole system work better and then I found out discovered it’s an absolutely um, flaw to the core system. And so, where we are right now is, you know, we do have these debt obligations on the books. They got to be dealt with, but before we, you know, in order to deal with them, we got to know what we’re doing going forward. uh do I continue to support debt cancellation only if we cancel the entirety of the program particularly if we go about cancelling parent plus loans and grad plus loans. So to me it’s a grand bargain with canceled debt provided that we put uh bring rain you know we reign in the entirety of the program but let me tell you where you know we can spend a lot of time here admiring the problem and the problem is very simple a lot of people are about to have to get like I said hit with a freight train sledgehammer whatever you want to call it and it’s because they want they’re now you know clearly understanding that they’ve got to take action but they don’t have the ability to take action So when I’m going to be calling upon uh the administration, the department of ed, you know, whether it’s SBA or Department of Ed or the White House, they need to put in place a capability between the time somebody is delinquent and the time that it’s intended to go over to Treasury. They need to put in in place some professional resources uh outside uh the government that can bring the knowhow, the technology, the capabilities to actually work with these borrowers. uh while they’re in delinquent state, even if they’re in in default state, but way before it goes to the hardcore draconian collection activities, okay, that the Treasury will impose. Final point, once it goes to Treasury, it will be with you for the rest of your life. So what we need to do is figure out how to get it how to get this amplified or um uh enhanced default management under control keep it away from uh hitting the hardcore collection activities the treasury get people’s lives back in order at the same time get ourselves collecting you know 30 to50 billion dollars of money that a year that we need to collect. All right Wayne Johnson we’ll have to leave it there but we hope you’ll come back. Thank you.