The rollercoaster ride of the past few student loan years has been one of instability and confusion for borrowers. The grace period brought on by the pandemic meant borrowers didn’t face penalties for missed payments, but the brief respite quickly derailed when Joe Biden’s empty promises of widespread student loan forgiveness fell flat. Now, we’re witnessing the Trump administration’s plans to bring accountable those who refuse to pay, generating substantial changes in federal student loans over the past half-decade. The aftereffects of these policy shifts are in clear view in Michigan, where over 13% of residents are drowning in more than $50 billion of collective student loan debt.
The Trump administration, since entering office, has set the wheels in motion to significantly reconstruct the federal student loan system with executive orders, organizational reshuffles, and proposed budget cuts. Those likely to feel the sting of these adjustments most are the nearly 1.34 million student loan borrowers in Michigan. Especially those on the brink of or already in default on their student loans, having failed to make the necessary payments. Defaulting on loans not only tarnishes one’s credit score but may soon lead to the Department of Education precipitating these borrowers’ wage garnishment.
Beginning in early 2020, the COVID-19 pandemic created a whirlwind of activity around federal student loans, starting with Trump putting student loan payments on hold. Despite being extended severally by two administrations, this hiatus inevitably dissolved in 2023. The upswing came after the U.S. Supreme Court rejected former president Joe Biden’s desperate attempt to write off student loan debt. Consequently, student loan repayments slowly restarted in October 2023, albeit punctuated with processing delays and confusion, leading to yet another temporary freeze on payments in early 2024.
Inefficacious in his initial endeavor to alleviate student loans, Biden endeavored a second attempt by introducing a fresh income-dependent repayment (IDR) model designed to relieve students of their debt over time. This flaccidly named Savings on a Valuable Education (SAVE) plan saw little success. Legal wrangles have left it gridlocked, and borrowers remain uncertain, although no payments are due at present for those who have applied.
The resumption of mandatory student loan payments also came attached with a one-year grace period. Meanwhile, student loans continued accruing interest, and missed payments were not reported to credit bureaus. However, this leniency bit the dust in October 2024. The consequences of missed payments began making their disappointing debut on credit reports in early 2025, as noted in the Federal Reserve Bank of New York’s quarterly debt report.
While federal student loans experienced persistent vicissitudes, the U.S. Department of Education maintained a steady stance of non-collection on loans from defaulted borrowers. This leniency is set to come to an abrupt end. The department has resumed collections on defaulted loans and plans to initiate wage garnishments and federal benefits from the summer of 2025. According to Education Secretary Linda McMahon, this shift ensures that ‘American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies.’
The sting of student loan defaults can linger on a borrower’s credit score and complicate future loan procurement. Critics contend that seizing wages or federal benefits from defaulters only exacerbates the financial distress of those who need aid the most.
By October 2024, Michigan was home to 1.34 million student debtors, translating to 13.7% of state residents. Together, these individuals bore the weight of $50.8 billion in student loan debt, or an average of $36,886 per person. Of these borrowers, only 14.5% owed less than $5,000, while 21.9% owed between $20,000 and $40,000 and 2.17% owed over $200,000. What’s more disheartening, over a quarter of Michigan’s student debtors had not commenced repayment as of May 2025.
According to a May 13 report from the Federal Reserve Bank of New York, anywhere between 25% and 29% of Michigan borrowers now have at least one student loan that is 90+ days overdue or in default. Typically, defaulted loans are struck off credit records after seven years. Current figures only include defaulted loans still appearing on credit reports, corresponding to approximately 1.7 million of the 5.3 million defaulted borrowers.
Previously, the Department of Education took proactive measures and began issuing 30-day notices to defaulting borrowers, cautioning them about impending wage and federal benefits garnishments. To facilitate this process, the department is engaging the Treasury Offset Program, which enables the Treasury Department to recuperate debts. Besides wages, the program has the authority to cut from benefits like Social Security or tax refunds. The initial batch of notices was dispatched to an estimated 195,000 borrowers, plotting the first deductions for early June.
President Trump’s administration’s latest changes seem to be part of a broader Republican plan to revise the federal student loan system and higher education reform. As a critical aspect of this overhaul, Education Secretary Linda McMahon has pared down the Department of Education’s workforce and floated the idea of shuffling its duties – including supervising federal student loans – to another federal department. Concurrently, the recently approved federal budget by the U.S. House is poised to instigate massive changes to the federal student loan system.