Student Loan Borrowers: Prepare for a Shift in Collection Activity
For the past five years, federal student loan borrowers who fell behind on their payments have been spared from the usual consequences, including wage garnishment and retirement benefit offsets. However, this reprieve is coming to an end.
Resumption of Collection Activity: What You Need to Know
According to a recent memo from the U.S. Department of Education, borrowers who have defaulted on their loans may face wage garnishment as early as October this year, while Social Security benefit offsets could resume as early as August. This change in policy is expected to affect roughly 5.5 million federal student loan borrowers who were in default as of late 2024.
New Pathways to Forgiveness
On a positive note, the Education Department has announced that borrowers in default will soon be able to enroll in the Income-Based Repayment (IBR) plan, which offers a pathway to forgiveness. Currently, borrowers must exit default before accessing income-driven repayment plans like IBR, which aim to set monthly payments at an affordable level.
Protecting Social Security Benefits
The Biden administration has also taken steps to protect a higher amount of people’s Social Security benefits from collection powers. When the consequences of defaults resume, those with a monthly Social Security benefit under $1,883 will be able to protect those benefits from offset, compared to the current protected amount of $750.
Taking Action: What Borrowers Can Do
Borrowers who are already in default should contact their loan servicer immediately to discuss resolving the issue. Options for getting out of default include rehabilitating or consolidating debt. Rehabilitation involves making nine voluntary, reasonable, and affordable monthly payments over a period of 10 consecutive months, while consolidation may be available to those who make three consecutive, voluntary, on-time, full monthly payments.
Preventing Default: Tips for Borrowers
For those who aren’t already in default, it’s essential to take proactive steps to avoid falling behind on payments. Contact your loan servicer to explore options for lowering monthly payments through income-driven repayment plans or pausing payments through deferment or forbearance.
Remember, staying on top of your student loan payments is crucial to avoiding the consequences of default. Take action today to ensure a more secure financial future.
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