Student loans in default will now be sent for collections, impacting 5.3 million borrowers
From Yahoo Finance: 2025-04-22 11:40:00
Starting next month, the Education Department will refer student loans in default for collections, affecting roughly 5.3 million borrowers with federal student loans facing possible wage garnishment. Referrals had been paused due to COVID-19, but that grace period ended in October, leaving borrowers like Kat Hanchon in a tough spot.
Hanchon, owing nearly $85,000, struggles to make ends meet with a tight budget and various expenses. The department plans to start sending notices for collection efforts soon, but borrowers have options to get out of default, including visiting the Default Resolution Group.
Involuntary collection will begin on May 5 through the Treasury Department’s offset program, allowing the government to garnish wages, intercept tax refunds, and seize benefit payments for loan repayment. Differentiating between delinquency and default, the latter carries more severe consequences like wage garnishment.
For borrowers in default, options include making monthly payments, enrolling in an income-driven repayment plan, or signing up for loan rehabilitation. Loan rehabilitation, recommended by experts, requires proof of income and expenses, with nine months of on-time payments leading to being taken out of default.
Student loan forbearance offers a temporary pause on payments for borrowers experiencing financial difficulties, but interest continues to accrue. Monitoring the status of student loans, updating personal information, and understanding how delinquency affects credit scores are crucial for borrowers.
Income-driven repayment plans are open for applications, basing monthly payments on income and family size. The SAVE program is no longer accepting applications but those already accepted are in administrative forbearance. Borrowers can review plan options using the loan simulator on studentaid.gov.
Read more at Yahoo Finance: Student loans in default will be sent for collection. Here’s what to know for borrowers