Key Takeaways:
- Over 5 million Americans with overdue student loans will face collections starting May 5.
- This is the first time since the COVID-19 pandemic that the Department of Education will collect defaulted loans.
- Borrowers who owe payments for about nine months or 270 days could be impacted.
The Department of Education announced big changes for millions of Americans struggling with student loans. Starting May 5, about 5 million borrowers who stopped paying their loans before the pandemic will have their debts sent to collections. This marks the first time since the pandemic began that the government is resuming loan collections.
For borrowers who owe money, this could mean extra fees, damage to their credit, or even wage garnishment. However, there are steps they can take to avoid these consequences.
What’s Going On with Student Loan Collections?
The COVID-19 pandemic caused widespread financial challenges, leading to paused payments for millions of borrowers. Now, with the economy slowly recovering, the Department of Education is resuming collections for borrowers who were already behind on their payments before the pandemic.
This means borrowers who haven’t made payments for about nine months, or 270 days, will face collection actions. Collection agencies may charge additional fees, which can increase the amount owed. Borrowers could also see their credit scores drop, making it harder to get loans or credit cards in the future.
What Happens If Your Loan Goes to Collections?
If your student loan is sent to collections, it can have serious consequences. Here’s what you need to know:
- Additional Fees:Â Collection agencies often charge fees, which can add hundreds or even thousands of dollars to your debt.
- Wage Garnishment:Â The government can take money directly from your paycheck to pay off the loan.
- Tax Refund Seizure:Â The Department of Education can also take your tax refund to cover unpaid loans.
- Credit Score Damage:Â Defaulting on a loan can lower your credit score, making it harder to buy a car, rent an apartment, or qualify for other loans.
What Can Borrowers Do Now?
If you’re one of the millions affected, don’t panic. There are steps you can take to avoid collections and get back on track:
- Contact Your Loan Servicer:Â Reach out to your loan servicer to discuss your options. They can help you create a plan to avoid collections.
- Apply for Income-Driven Repayment: If you’re struggling to pay, income-driven repayment plans can lower your monthly payments based on your income.
- Consolidate Your Loans:Â If you have multiple loans, consolidating them into one loan might make payments easier.
- Seek Assistance:Â Nonprofit credit counseling agencies can provide free or low-cost advice to help you manage your debt.
Why Now?
The Department of Education is resuming collections as the pandemic relief comes to an end. With payments set to resume, the government is taking steps to address unpaid loans that were paused during the crisis. However, this decision has raised concerns for many borrowers who are still recovering financially.
What’s Next for Student Loans?
This isn’t the only change on the horizon for student loans. Borrowers are waiting to hear about broader forgiveness plans and potential extensions of the payment pause. While this announcement affects those who were already in default before the pandemic, it’s a reminder that student debt remains a major issue in the U.S.
For now, the focus is on helping borrowers avoid collections. If you’re at risk of having your loan sent to collections, act quickly to explore your options and avoid further financial strain.
Bottom Line
May 5 is a critical date for millions of Americans with overdue student loans. While the resumption of collections can be stressful, there are ways to manage the situation. Borrowers who act now can avoid collections, protect their credit, and get back on track with their payments.
If you’re one of the 5 million borrowers affected, don’t wait until it’s too late. Take control of your student loans today.