Student Loan Debt Collection Resumes

The Department of Education announced that beginning May 5, it will restart student loan debt collection efforts on defaulted loans, which could include wage garnishment via the Treasury Offset Program. Defaulted federal student loans have not been subject to recollection efforts since March 2020. It is estimated that loans in default status may soon comprise about 25% of all student loans. Borrowers in default can contact the Department’s Default Resolution Group for assistance.

In conjunction with the announcement, Education Secretary Linda McMahon published an op-ed in The Wall Street Journal pledging to hold both students and colleges accountable for poor student loan repayment outcomes. McMahon contends that nonprofit colleges have been profiting off students by luring them into worthless degree programs to “pil[e] up multibillion-dollar endowments.” She supports these claims by citing a 2015 study by the Federal Reserve Bank of New York that concluded for every dollar of increased federal caps on subsidized student loans, colleges raised sticker price tuition by 60 cents.

This report is a common citation for student loan program critics because it is a rare example of research that suggests such dramatic support for the Bennett hypothesis, which argues that schools raise tuition prices to capture increases in federal student aid.

This idea has been researched thoroughly for nearly 40 years, and the preponderance of research disagrees with McMahon’s position, as seen in reports from the Government Accountability Office, the National Center for Education Statistics, the National Bureau of Economic Research, Seton Hall University, and the Cato Institute, to name a few.

What research exists that does suggest support for the Bennett hypothesis, including McMahon’s cited study, is generally in agreement that this phenomenon of raising tuition to capture increases in federal student aid is overwhelmingly seen in the for-profit sector.

For more information, please contact:
Justin Monk