Department Of Education To Resume Default Loan Collections In Less Than A Week

Starting next week, the Education Department will resume collections on defaulted federal student loans for the first time in more than five years.

According to the federal agency, more than 5 million borrowers have not made a monthly payment in over 360 days, and in a few months, the number of people in default could be as high as 10 million.

Involuntary collections, paused since March 2020 due to the COVID-19 pandemic, will restart on May 5 through the Treasury Offset Program.

Will your student loans be sent to collections? What to know
That program allows the government to withhold federal payments like tax refunds, portions of Social Security benefits, and even garnish wages for individuals in default.

“American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies,” U.S. Secretary of Education Linda McMahon said in last week’s announcement.

McMahon accused the Biden Administration of misleading borrowers and said the executive branch does not have the power to wipe debt away.

Here’s what to know about the upcoming changes.

How many borrowers are behind on payments?

Only 38% of the nearly 43 million student loan borrowers are in repayment and up to date on their loans, according to the Education Department.

Roughly five million borrowers are in default, while another four million are in “late-stage delinquency” at risk of defaulting soon.

What do Education Department cuts mean for student loans?
A student loan is considered delinquent just one day after a missed payment. If no payments are made after 270 days, the loan enters default.

Delinquent loans get reported to national credit bureaus after 90 days and can hurt your credit score. Defaults are even more serious, and with the restart of involuntary collections, they can lead to wage garnishment.

How can borrowers figure out the status of their loan?

The Education Department says all borrowers in default will receive emails from the Office of Federal Student Aid ahead of the May deadline to ensure they’re aware of the restart.

Borrowers can also check their loan status and their loan servicer information on the federal website, StudentAid.gov. Make sure your account information is up to date so you receive notices about involuntary collections via email.

What happens if my loans are in default?

Borrowers in default should get in touch with the Default Resolution Group to make a monthly payment, enroll in an income-driven repayment plan, or sign up for loan rehabilitation, the Education Department said.

Some student loan repayment plans have been suspended. Here’s what borrowers should know
Starting Monday, May 5, the federal government can withhold tax refunds and other federal payments to cover your debt. Seizures from recurring payments, like Social Security benefits, won’t start until early June, according to the New York Times.

Wage garnishment will begin “later this summer” after notices are sent out, the government said.

What is the Education Department doing for borrowers?

The department said it will conduct “a robust communications campaign” to make sure borrowers know what’s going on and provide resources to help them choose the best repayment option.

Such resources include the Loan Simulator tool, an AI assistant (Aiden) and extended loan servicer call center hours.

“FSA will also launch an enhanced Income-Driven Repayment process, simplifying the time that it will take borrowers to enroll in IDR plans and eliminating the need for borrowers to recertify their income every year,” the department said in its recent announcement.