The US Department of Education says it will begin mandatory collections on defaulted student loans.
PHILADELPHIA (WPVI) — The US Department of Education says it will begin mandatory collections on defaulted student loans.
Next month, for the first time since student loan payments were paused due to COVID, the Education Department will collect the debts from borrowers who defaulted before the pandemic. This will impact some five to nine million Americans, depending on whom you ask.
“This is a big deal because now borrowers may see that their student loans are set to be garnished via their paycheck, even tax returns, if they have not yet filed or social security benefits which is a bit deal,” said Sonia Lewis with Student Loan Doctor. “So a lot of people are being caught off guard right now.”
The Department of Education says “resuming collections protects taxpayers from shouldering the cost of federal student loans that borrowers willingly undertook…”
“Once someone is late over 270 days, the Department of Education automatically will institute the steps of putting you into default. If they do not contact lender or the default resolution group to rehabilitate their loans, then they are going to start to be garnished as of July,” says Lewis.
The feds say “the initiative will be paired with a comprehensive communications and outreach campaign to ensure borrowers understand how to return to repayment or get out of default.”
But after scores of Federal Student Aid or FSA employees have been terminated at the Department of Education, there is concern how the student loan system will be managed.
“So, there’s a few things that people can do. When you go to StudentAid.gov and you log in and look at your dashboard, it will let you know if you’re in default. If you’re in default, you’re going to need to call the default resolution group,” said Lewis.
Lewis said to be prepared to wait on hold and then let them walk through you the next steps to get you out of default. She said you will have to make nine out of 10 successful monthly payments, which in some cases can be as low as $5.
And Lewis said not only should you make those payments, you should also keep track that the payments are marked and counted.
Lewis said some borrowers may also be eligible to consolidate student loans, but that option is only for someone that could not do the rehabilitation first because rehabilitation can remove the mark and status of you ever being in default on your credit.
She also added the last option, which is if you just have late payments and are not in default just yet, borrowers can call their lender and ask them them if they’d backdate the general forbearance to the time that the payment was late.
She says if you have available months of general forbearance, your lender will likely do this for you.
Finally, Lewis says you have to ask for this. It’s not something that lenders automatically do and it may also help improve your credit score.
She added it will look like you were never late for on those payments and lenders can do it as far back as six months.
