SAVANNAH, Ga. (WTOC) – The Department of Education has announced that starting on May 5, they would resume collection on federal student loans loans even going as far as to garnish wages.
So if you are one of the millions whose loans are in default here is what you can do in the next few weeks:
- Look out for communication from Federal Student Aid (FSA) as they are supposed to contact borrowers in default via email over the next few weeks.
- If you are in default, you’ll want to figure out the best plan to get your loans in rehabilitation.
- The FSA will be directing those impacted to contact the Default Resolution Group to make a monthly payment or enroll in some sort of repayment plan.
On Monday, May 5, those in default may face their loans being sent to collections which University of Georgia Department of Finance Assistant Professor Nikhil Paradkar says can bring a host of issues, including a negative hit to your credit score.
“Say in the worst case scenario, your loan actually ends up in collections and you end up paying it off, that is not guaranteed to remove that collection flag from your credit report. You still need to take that additional steps to make sure that whatever steps you are taking to correct the situation, will also result in that flag being removed from your credit report instantaneously,” Paradkar explained.
The Education Department reports it will start with sending defaulted loans to collections and then later this summer the agency says borrowers’ wages could be garnished.
Experts say this is all coming at a time when many Americans are already living in financial distress.
“Going in to collections is a pretty big deal depending on what scoring model is used. It presents about a hundred point decrease in someone’s credit score, immediately, and it takes time to overcome that,” Paradkar said.
When something is sent to collections, Paradkar says it can stay on your credit report for 7 years. Finding ways to avoid the collections process will be very important.
With the future of some repayment plans uncertain, be sure to contact the office of Federal Student Aid to find what works best for you.
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