5 Million Student Loans In Default As Repayments Resume Amid Economic Challenges

WASHINGTON (7News) — This summer, five million student loans will be in default — Student loans had been in deferment during the COVID-19 pandemic, but as of 2023, student loan debt is being collected again.

Many borrowers are finding it difficult to restart those payments due to inflation and an uncertain economy.

The consequences of not paying that debt could be severe, including lowering your credit rating.

“The Federal Reserve just found that 2.2 million people who owe money on student loans had their credit scores dropped by 100 points or more just in the first few months of the year,” said Matthew Frankel, finance expert with The Motley Fool.

A lower credit score will make it harder to take out a loan or get a credit card. Severely delinquent loans are 90 days past due. And if you’re 270 days late, the government can seize your wages.

“That’s when you’ll see tax refunds being seized. That’s when you’ll see them really step up their efforts to involuntarily take the money,” Frankel added.

Wages could be seized from your paycheck or tax refund, but so far, not your Social Security checks.

Frankel said part of the problem is that some students in arrears are not getting notified. He recommends being proactive.

Log in to your student loan account here and find out where you stand. If you are behind in your payments, you must act quickly. This doesn’t mean you have to start making expensive payments right away.

There are a variety of options to get your loans back into good standing.