The Trump administration’s move to resume collections on defaulted student loans could further strain the U.S. economy, experts warned in an interview with ABC News.
Starting May 5, the U.S. Department of Education will send roughly 5 million borrowers into collections. Another 4 million are already in late-stage delinquency and could follow within months. Under the plan, the federal government will begin garnishing wages from some borrowers—diverting money that could otherwise fuel consumer spending, a key driver of economic growth.
While the economic impact from these collections alone may be small compared to broader issues like tariffs or investor uncertainty, experts say it could add pressure at a precarious moment.
“The bottom line is: it’s not going to be good for the economy, given the current economic situation that’s already precarious,” said Scott Imberman, a professor of education policy at Michigan State University. “It’s an additional weight that could tip us into a potential recession.”
Student debt in the U.S. totals over $1.6 trillion, spread across about 42 million borrowers, according to the DOE. If all borrowers currently delinquent were to default, the default rate would approach 25%.
The collection push ends a pause that began in 2020 at the start of the COVID-19 pandemic. Millions of borrowers will soon have to resume payments—many for the first time in years.
“The scale is quite large,” said Michael Jones, an economist at the University of Cincinnati. “Every dollar going to repay loans is a dollar not spent elsewhere in the economy.”
With consumer spending making up nearly 70% of U.S. economic activity, and surveys showing waning consumer confidence amid inflation worries, the timing could amplify economic headwinds.
Beyond spending, the collections could also damage borrowers’ credit scores, making it harder for them to secure loans for major purchases like homes and cars. “Those individuals will not qualify for the auto loan they otherwise would’ve been able to purchase,” Jones noted. “That can cause a drop in vehicles being sold.”
However, some experts urged caution about overestimating the impact.
Brent Evans, a professor at Vanderbilt University, acknowledged the economic uncertainty but said predicting the effect of any single policy is difficult. “The uncertainty in the economy is near an all-time high,” Evans said. “It’s hard to isolate the impact of one lever like this.”
He also pointed out that not all borrowers in default will be affected, as collections typically target wages and Social Security benefits. “It’s clear this means less money in people’s pockets, but it might not be a significant amount for every borrower,” he said.
The resumed collections will send funds back to the U.S. Treasury, helping to slightly offset the nation’s $36 trillion debt. U.S. Secretary of Education Linda McMahon defended the policy, criticizing the Biden administration’s attempts to cancel student debt.
“American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies,” McMahon said in a statement Monday. “The Biden Administration misled borrowers: the executive branch does not have the constitutional authority to wipe debt away, nor do loan balances simply disappear.”
Though painful in the short term, the resumption could bring needed clarity to borrowers, said Jones.
“It is short-term pain but it actually brings certainty,” he said. “Borrowers can now make informed decisions about their financial futures.”
Jones added that while the timing is unfortunate with a possible recession looming, the longer collections were delayed, the harder the adjustment would become. “It’s probably time to rip the Band-Aid off,” he said.
