On Monday, the U.S. Department of Education is expected to resume collections on student loans that are in default, ending a five-year pause that first began at the start of the pandemic.
According to the agency, more than 5 million borrowers are in default, which typically happens after nine months of non-payment on a federal student loan. The federal government can force collections on defaulted student loans by garnishing wages, tax refunds or Social Security benefits.
About 500,000 Oregonians have student loans, most of which have balances between $10,000 and $40,000, according to Lane Thompson, the Oregon Student Loan Ombuds. That position was created through the passage of SB 485 in 2021, which also required all companies that service student loans in Oregon to be licensed by the state’s Division of Financial Regulation.
Thompson joins us to share more information about her office and offers advice for borrowers in Oregon.
Note: The following transcript was transcribed digitally and validated for accuracy, readability and formatting by an OPB volunteer.
Dave Miller: From the Gert Boyle Studio at OPB, this is Think Out Loud. I’m Dave Miller. At the start of the pandemic, the first Trump administration stopped collecting on student loans that were in default. Today, as you might have just heard during the break, five years later, after a confusing series of policies and lawsuits, the second Trump administration has officially ended that pause. Collections on those defaulted loans have restarted. According to the U.S. Department of Education, more than 5 million borrowers are now in default, which typically happens after nine months of nonpayment on a federal student loan.
Lane Thompson joins us to talk about the situation in Oregon. She is the Oregon Student Loan Ombuds. Lane Thompson, welcome to Think Out Loud.
Lane Thompson: Thank you. Great to be here.
Miller: First of all, what does it mean to be a Student Loan Ombuds?
Thompson: Basically, what that means is that I help resolve conflicts or challenges between student loan borrowers and their servicers.
Miller: The U.S. Department of Education said recently that in a few months almost 25% of the federal student loan portfolio is going to be in default. If Oregon is around the national average, my back of the envelope math says that about 125,000 Oregonians are going to be in default. Does that number seem right to you?
Thompson: That does sound about right.
Miller: 125,000 people pretty soon … So the big news now, as I mentioned, is that the federal government is resuming collections on these defaulted federal student loans. What is that going to look like?
Thompson: That’s unfortunately not extremely clear yet. What we know is that starting today, tax refunds will be withheld towards that defaulted debt. Soon, they will also start garnishing Social Security benefits, paychecks, and even people’s checking and savings accounts.
Miller: So first they will collect money that would otherwise be sent from the government, and after that they’ll directly garnish wages.
Thompson: Correct.
Miller: What options do borrowers have?
Thompson: For most folks, the two best options are going to be either to rehabilitate their loans or consolidate and start over with a new loan. Both of those options are going to be accessed through the Default Resolution Center at studentaid.gov.
Miller: What does it mean to rehabilitate a loan?
Thompson: Yes, it’s a very wonky term, but basically what it means is that the servicer assigns what they see as an affordable payment and makes sure that you make that payment nine times. After that ninth payment, your loan returns to a current status and you have the regular loan options available.
Miller: Do Americans with student loans right now have a clear understanding of how much they’re expected to pay on any given month? I ask this because I’ve seen a lot of confusion about Trump-era and then largely Biden-era policies that had explicitly said, “hey folks, if you sign on to this, you can pay less per month,” and then all kinds of complicated lawsuits followed. But do people even know the basics of how much they will be expected to pay?
Thompson: I would say that most people do know what they’re expected to pay. However, there is a lot of confusion. As you mentioned, during the previous administration they rolled out a new income-driven repayment plan, and under this current administration they’re proposing rolling out additional repayment plans; but because of challenges in the courts and these changing rules, there are quite a few people who are being left in the dark in terms of what their expected payment is.
Miller: Left in the dark, meaning they’re just not getting clarity from the loan servicer or from the federal government?
Thompson: It generally comes down to that the loan servicers are not getting clear instructions on which income-driven repayment programs are available at any given moment. And in fact, I read this morning that they have not been processing income-driven repayment applications. So if you wanted to switch plans or start on that, they haven’t processed those at all since last September. So for a lot of folks, they may have applied for an income-driven repayment plan, but not have been placed on that.
Miller: Last September – that’s an important date to me because that is five months or so before a gigantic staff loss at the U.S. Department of Education. Something like 50% of U.S. Department of Education staff have been laid off, let go or took early fork-in-the-road buyouts. What does that mean, that gigantic workforce loss, for people with student loans?
Thompson: I think mostly, it means a lot more waiting, more confusion, less clarity. The team that was assigned to work with external stakeholders like me was completely eliminated. So it’s definitely making the jobs of people like me more difficult. We can’t access information, and the same effect on borrowers. There’s just less available.
Miller: So if someone comes to you and says, “there’s something weird going on with what I’m being asked to pay,” or, “I don’t understand this aspect of my student loan,” if you go to the feds, the people you used to talk to, simply, they’re not there anymore?
Thompson: There are still people working on the complaints that are made to the Department of Education, but that staff has been reduced significantly and any shortcuts, any workarounds are really gone now.
Miller: So, just to be clear, at a time when a lot more is being asked of the Department of Education at the federal level, there are many fewer people to do the work of this federal agency.
Thompson: That’s correct. And I think it’s really contributing to the confusion because when people call or email to try to get some clarification they often experience long wait times or aren’t able to contact anyone at all.
Miller: Is that something that you could help with as a state-level ombuds?
Thompson: Unfortunately, in most cases, I cannot. I am able to work complaints against servicers. For example, if a borrower sent a payment and the servicer didn’t apply that payment to their loan, I can work directly with the servicer on that kind of issue …
Miller: On that company, that private company. But what if it is a problem that the borrower and you think is originating at the federal level?
Thompson: Then we run into some pretty big obstacles and a lot of delays. And unfortunately, I don’t have any additional tools than anyone else has right now while working with the federal government.
Miller: What are the big concerns that you have right now about the restarting of collections?
Thompson: I have a few major concerns. The first one is the lack of clarity around exactly how the collections are being done, as well as the lack of clarity around which repayment plans are currently available.
My other major concern is that this really creates an opportunity for scammers to try to fill in the gaps that the Department of Education has left. So that could look like people calling or emailing, texting, trying to take advantage of borrowers.
Miller: What’s an example of a scam that you’ve heard about or that people have come to you and have complained specifically about?
Thompson: The most common one I hear about is receiving either an email or a call that says, “You may be eligible for debt cancellation.” I can tell you that the federal government is not sending those emails or making those calls. If you are eligible for forgiveness, that’s something you need to look into and find out on your own. So that’s the biggest one I see, is just private companies trying to …
Miller: Could that be a real offer, or if someone sees that, is it basically a given that it is a scammer?
Thompson: The way I like to say it is, “It is given that it’s not the federal government.” It’s not necessarily a scammer, because the person or the entity could be licensed as a debt management service provider or as some kind of a document processor. And if they have that license, it is legitimate for them to be doing that.
However, in most cases, they’re offering benefits or programs that are already accessible to borrowers for free.
Miller: Oh, OK, so the best case scenario here is that they’re charging you for something that’s free. The worst case scenario is that they’re just true scammers who are not even real in any way.
Thompson: That’s exactly right.
Miller: They just simply want to steal your money.
When I imagine the age range that you’re dealing with, the groups that first come to mind are people in their 20s, 30s, 40s. What kind of range do you actually see?
Thompson: The largest group of people I talk to are seniors.
Miller: What age?
Thompson: People over the age of 55, but a lot in their 60s and 70s.
Miller: Who have outstanding student loans or maybe in default and who could then, as of today, start losing their Social Security payments?
Thompson: Yes, and those are the borrowers I worry about the most. It’s often people who took out Parent Plus loans on behalf of their children, or people who went back to get education during the big financial crisis in 2008.
Miller: Lane Thompson, thanks very much.
Thompson: You’re welcome.
Miller: Lane Thompson is the Oregon Student Loan Ombuds, part of Oregon’s Division of Financial Regulation in the Department of Consumer and Business Services.
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