New Student Loan Rules Could Affect 725,000 Wisconsin Borrowers
Trump administration will begin collections on student loans in default on May 5.
Graduation
For the last five years, the federal government has not penalized borrowers for not making student loan payments.
But the U.S. Education Department announced Monday it would begin collections May 5 on student loans that are in default.
In Wisconsin, this could affect the 725,000 borrowers who have outstanding payments totaling $23.6 billion in federal student loan payments.
Debt collection could come in the form of garnishing wages or intercepting tax refunds and Social Security benefits, according to announcements this week.
The majority of Wisconsin borrowers — about 485,000 people who owe a total of $17 billion — are between the ages of 25 and 49, according to data released in September 2024.
About 29,000 people in Wisconsin are aged 62 and older and still have outstanding payments totaling $1.2 billion.
Carole Trone, executive director of the Wisconsin Coalition on Student Debt, said borrowers should first log onto their account at studentaid.gov to see exactly what their status is.
Trone said borrowers should also see who their loan servicers are, because those change.
“You want to make sure you have an account with them and contact them,” Trone said. “There are income driven repayment options that your servicer can walk you through. You can have a repayment amount that takes into consideration what your income is and your family size.”
Announcement ends 5-year period of leniency
Trone says this week’s announcement is confusing for many borrowers because there have been so many changes over the last five years.
In 2020, then-President Donald Trump paused federal student loan payments and interest accrual as a temporary relief measure for student borrowers.
Under former President Joe Biden, the Education Department tried multiple times to give broad forgiveness of student loans, but those measures were blocked by the courts.
The pause in payments was extended multiple times through 2023, and a final grace period for loan repayments ended in October 2024. Anyone with student debt who has not been making payments since that time is considered to be in default, according to Trone.
Now, the Trump administration will begin involuntary collection through the Treasury Department.
In a statement, U.S. Secretary of Education Linda McMahon said taxpayers will no longer be “forced to serve as collateral for irresponsible student loan policies.”
Nationally, the decision will affect about 5.3 million borrowers who are in default on their federal student loans.
Mike Pierce, executive director of the Student Borrower Protection Center said the decision comes as Americans are navigating unprecedented economic uncertainty and struggling to cover the rising costs of everyday goods.
“This is cruel, unnecessary, and will further fan the flames of economic chaos for working families across this country,” Pierce said in a statement.
Wisconsin graduates say student loan debt is financial burden
Madeline Szohr graduated from the University of Wisconsin-La Crosse in May 2023 with a communications degree.
For the last two years she has worked in the restaurant industry in Wauwatosa and has about $17,000 in student loan debt.
Szohr deferred her student loans until October 2024.
That’s when the federal government began advising loan servicers to begin collecting delinquent payments or report borrowers to credit bureaus.
The move could affect credit scores and borrowers’ future ability to rent an apartment, get approved for a car loan or mortgage or even get a job.
“I don’t want to not pay it because I don’t want my credit to go down, I don’t want to go to collections or anything, that scares me,” Szohr said. “I pay the minimum amount right now, like $196 a month. Not terrible, but I don’t want to pay more because I have all these other bills to pay.”
Abby Keelan graduated from the University of St. Thomas in Minnesota in 2019 with a degree in psychology.
She has also been working in the restaurant industry since graduation and has steadily been paying off her $50,000 in student loans.
“I did get them deferred for about two years during COVID, but then just picked them up where I left off,” Keelan said.
She says she would like to find work in her field, but realizes doing so would probably mean needing a master’s degree, which means more debt.
“I feel like half of my income just goes to paying off my loans,” Keelan said. I live with my parents because I’m paying off my student loans. So yeah, it’s a big financial burden.”
If you have questions about your federal student loans, call or email the Wisconsin Coalition on Student Debt: 833-589-0750 or StudentLoanQuestions@debtsmarts.org.
New student loan rules could affect more than 700K Wisconsin borrowers was originally published by Wisconsin Public Radio.
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