Federal student loan repayments resume on May 5th: Key information for borrowers.
Get Ready to Pay Up: Federal Student Loan Collections Resume
America, buckle up! The federal government is set to restart student loan payments for the first time since the pandemic began, according to info spilled by the suits in DC.
The Trump administration – yep, them again – announced that they're restarting collection efforts on defaulted loans through a Treasury Department program. Forget sending bills or annoying reminder texts; they'll be snatching payments right out of your taxes, wages, and government benefits.
You heard that right. If you owe student debt and haven't been making regular payments like a responsible human, the Education Department has been taking a sneaky pass for the past year and a half. But that ends now. If the data we've got is correct, only a third of the nearly 43 million folks who owe money have been keeping up with their payments.
Over the last five years, student debt has ballooned to an astounding $1.6 trillion – but not to worry! Education Secretary Linda McMahon said American taxpayers will finally be spared the burden. Here's what she said, fresh off an April 21 news release: "Gone are the days when American taxpayers have to serve as collateral for irresponsible student loan policies."
Now, folks are having a tough time with inflation and living costs, and advocates say student borrowers are feeling the pinch. Sabrina Calazans, the executive director of the Student Debt Crisis Center, isn't holding back: "We're in the worst student loan landscape we've ever seen. These policies are going to hurt millions, and it's going to create a financial catastrophe for people who won't be able to meet their basic needs."
So, what happens next? All borrowers in default should have received an email from the Office of Federal Student Aid. Check your inbox, because this one's important! The email urges borrowers to get in touch with the Default Resolution Group to figure out a payment plan or sign up for loan rehabilitation – a process that can erase a default status if you make a set of payments during a specific time frame, based on your loan type.
To schedule monthly payments, you'd need to send your most recent 1040 tax return to the Education Department. But just so you know, if your marital status or income hasn't changed, you might have to do that anyway to avoid wage garnishment and tax refund withholding.
If you don't want your tax refund or part of your paycheck to disappear, you should get in touch with the Default Resolution Group. Don't forget, you can always seek advice from a financial counselor to help figure out the best plan for you.
The Education Department will be using the Treasury Department's Offset Program to collect on the debt. Under this program, they can take your entire federal tax refund and up to 15% of your disposable pay. They'll let you know about wage garnishment later this summer.
But don't just take our word for it! Make sure you're up-to-date on your student loans and don't end up in hot water.
Now that loan forgiveness is off the table, what can you do?
Before President Biden left the White House earlier this year, his administration cancelled student debt for more than 5 million people. However, the Trump administration has made it very clear – there's no mass loan forgiveness happening anytime soon.
Don't fret! There are still options to help you manage your student loan debt and avoid severe financial consequences like wage garnishment and tax refund withholding.
Steps to Avoid Wage Garnishment and Tax Refund Withholding
- Repayment Options: Contact the Default Resolution Group to make a monthly payment or enroll in an income-driven repayment plan.
- Loan Rehabilitation: If you're in default, sign up for loan rehabilitation to make a set of payments during a specific time frame to remove your default status from your credit report and regain access to federal student aid benefits.
- Consolidation: Consider consolidating your loans to manage your debt, although it might not necessarily remove your default status if you're currently in default.
- Wage Garnishment Notice: You'll receive a 30-day notice before wage garnishment begins, allowing you to take action to prevent it.
- Seek Professional Advice: Consult a financial counselor or student loan expert for help exploring all available options for managing your debt.
Stay on top of your student loans, folks. You don't want to end up in a tough spot!
[1] Federal Student Aid. (2022). Income-Driven Repayment Plans. https://studentaid.gov/manage-loans/repayment/plans/ibr
[2] Federal Student Aid. (2022). Loan Simulator. https://studentaid.gov/calculator/payback/
[3] Federal Student Aid. (2022). Default Resolution Group. https://studentaid.gov/manage-loans/default/drg
[4] Shapiro, M.D. (2021). 5 Questions to Ask When Choosing a Student Loan Consultant. NerdWallet. https://www.nerdwallet.com/blog/student-loans/5-questions-student-loan-consultant/
[5] Federal Student Aid. (2022). Defaulted Loans Overview. https://studentaid.gov/manage-loans/default
- With mounting student debt and the resumption of loan collections, it's crucial for borrowers to seek financial advice to manage their loans and avoid severe consequences.
- To avoid wage garnishment and tax refund withholding, consider enrolling in a repayment plan or loan rehabilitation, consolidating your loans, or consulting a financial counselor or student loan expert for professional assistance.
- Financial self-development can also help borrowers make informed decisions about their loans and create a personal-finance plan tailored to their needs.
- As the Education Department uses funds from the Treasury Department's Offset Program to collect on defaulted loans, it's essential for borrowers to be diligent in contacting the Default Resolution Group to discuss payment plans and avoid financial catastrophe.
