Trump’s student loan ‘catastrophe’ looms once it’s no longer ‘politically insane’: report

The Trump administration is quietly preparing to go after the wages, tax refunds and federal benefits of millions of Americans in default on their student loans, but not until after the midterm election.

Five sources told the Washington Sun that officials are readying financial penalties for the nearly 10 million borrowers in default. Three of the sources said the Treasury Department is moving ahead with plans to hire private debt collectors, possibly as soon as November, but those plans are unlikely to be announced before Election Day.

“It would be politically insane to do this before the midterms,” one source said. “But 2027 probably makes a little more sense to give Treasury time to get contracts signed, up and running.”

Some officials are pushing to begin seizing benefits and garnishing wages for the current tax year, which runs up to the April 15, 2027, filing deadline. Sources cautioned that the timeline could slip again.

The government has two main ways to recover the money. It can seize payments such as tax refunds, Social Security benefits and the earned income and child tax credits. It can also require employers to hand over a portion of workers’ wages.

The administration put the policy on hold last year. The White House Office of Management and Budget had been helping the Education Department prepare to seize wages and benefits, and Treasury officials blocked the effort, citing the economic cost to struggling workers.

According to two sources, Treasury staff warned senior officials that many of the people who would be hurt were Trump supporters.

“This is not who you think it is. The demographics are not good for us,” one source said, describing the message.

Matt Chingos, a Treasury official and former Senate Republican staffer, is leading the effort to restart collections while limiting the fallout for borrowers. Treasury recently launched a Defaulted Loans Support Center to help borrowers get out of default, and the administration’s preference remains getting borrowers into voluntary payment plans, according to the Sun.

Treasury’s postponement has cost taxpayers about $5 billion so far, according to Marc Goldwein of the nonpartisan Committee for a Responsible Federal Budget.

“They’ve done the same thing they criticized Biden for,” he said.

OMB and Treasury declined to comment, and the Education Department said, “We don’t respond to fishing expeditions.”

Borrower advocates blasted the timing as political opportunism.

“Restarting debt collection the moment any political accountability has passed just shows how little interest Trump has in helping working families stay afloat,” said Michael Pierce, executive director of Protect Borrowers. “What comes next will be a catastrophe for families across the country — seized tax refunds, garnished wages, and even less money to put food on the table or make rent.”

Pierce also questioned whether Treasury has the data it needs to legally certify the debts for collection.