Student Loans: What's Happening with Defaulted Debt?

The government is restarting the collection of defaulted student loans. This move affects millions of borrowers who have not made payments in a long time. The Department of Education will start taking money from tax refunds, Social Security benefits, and even wages of those who are in default. The process of defaulting on a student loan is straightforward. If a borrower misses payments for about nine months, they are considered in default. Many borrowers are already in trouble. Nearly 3 million are behind on payments by 61 to 90 days. Another 4 million are in serious delinquency and close to default. The government is urging borrowers to take action now. They can start making payments or switch to a repayment plan based on their income. This is important because the government will start taking money from paychecks and benefits soon. This can be scary and confusing for many people. The government has been pausing collections since the pandemic started. This pause was extended multiple times, but now collections are resuming. The government says it has to collect these debts because they are owed to taxpayers. Borrowers can check if they are affected by logging into the Department of Education's website. They can also contact their loan servicers for help. There are options to get out of default, like loan consolidation or rehabilitation. These methods can make payments more manageable and improve credit reports. The government is also cutting down its workforce, which might make it harder for borrowers to get help. However, there are other resources available, like nonprofits and state ombudsmen. Borrowers should use the loan calculator on the federal student aid website to explore their repayment options. They can also change their repayment plans as their financial situation changes. The government's student loan program is flexible. Borrowers should take advantage of this flexibility to manage their debt better. It's crucial to stay informed and proactive to avoid the stress of defaulted loans.