The U.S. Department of Education will resume collections on defaulted federal student loans, affecting around 5.3 million borrowers
KNOXVILLE, Tenn. — Starting on May 5, millions of people with federal student loans must have a plan to pay off their loans or face financial consequences.
The Department of Education announced it will resume collections on defaulted federal student loans. It says around 5.3 million borrowers fall under this category, with another 4 million approaching default status this year.
A defaulted loan means borrowers have not made any payments to the accounts in more than 360 days. According to the Department, 42.7 million borrowers owe more than $1.6 trillion in student debt
Financial expert and owner of Federal Solution Support Eric Steffy said people must put together a plan as soon as possible.
“Everyone must have a plan in place to go forward, and for a lot of people, they’ve had a five-year deferment, and what that means is their budget isn’t set to start making a payment plan,” Steffy said. “It’s crucial that you get a payment plan scheduled with the federal government so you aren’t under stress.”
He said failure to register or make payments can have serious consequences.
The Department of Education said if you don’t take the right steps, officials may use wage garnishment to get what they are owed. This means the government can go to your employer and take money out of your paychecks before you ever even see them.
“There’s three main options you can look at. There’s an income-based option. There is you can set a term up of how many years you want to pay it off with the payment set,” Steffy said. “Or you may have situational options of where you’re at in your life, maybe you’re unemployed right now, or maybe you went back to school, so there are options there that they would look at actually doing a deferral for another 6 months.”
In addition to wage garnishment, Steffy said failing to set up a plan to repay your loans can impact your credit score and allow the government to withhold your tax refunds.
The best way to move forward is to reach out for help from the department itself. You can visit their website to learn more.
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