Are your student loans in default? They'll soon be sent to debt collectors
Americans with student loans in default will have to begin repaying them next month or risk having their wages garnished.
According to a statement from the Education Department, starting May 5, the Treasury Department's offset program will initiate involuntary collection on those loans. This means government payments — including tax refunds, federal salaries, and other benefits — will be withheld from individuals with overdue debts. Additionally, after a 30-day notice period, the department will begin wage garnishment for borrowers in default.
Secretary of Education Linda McMahon, who seemingly took a dig at the Biden administration's loan-forgiveness program, said the borrowers are responsible for paying the loans.
'American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies,' said McMahon. 'The Biden Administration misled borrowers: the executive branch does not have the constitutional authority to wipe debt away, nor do the loan balances simply disappear."
Here's what borrowers need to know about the loan collection.
The U.S. Department of Education announced that it will restart collections on defaulted student loans beginning May 5.
Over the next two weeks, the department will notify borrowers in default via email, encouraging them to make a payment or enroll in a repayment plan. The emails will also direct them to a government website with details on how to proceed.
Wage garnishment is a legal procedure in which a person's earnings are required by court order to be withheld by an employer for the payment of a debt. According to the Education Department's notice, wage garnishment will begin later this summer, meaning payments will be automatically taken from borrowers' paychecks.
According to Federal Student Aid, for most federal student loans, borrowers enter default after 270 days (roughly nine months) of missed payments. Once in default, the full remaining balance becomes immediately due, and the government can take action to recover the debt, such as garnishing wages or withholding tax refunds.
Nearly 5.3 million borrowers are in default on their federal student loans.
As per the Federal Student Aid website, the following can happen for those who have defaulted on their loan without making a payment:
The entire unpaid balance of your loan and any interest you owe becomes immediately due.
Your tax refunds and federal benefit payments may be withheld and applied toward repayment of your defaulted loan (this is called 'Treasury offset').
Garnished wages. This means your employer may be required to withhold a portion of your pay and send it to your loan holder to repay your defaulted loan.
You can no longer receive deferment or forbearance, and you lose eligibility for other benefits, such as the ability to choose a repayment plan.
You lose eligibility for additional federal student aid, such as Federal Pell Grants and student loans.
The default is reported to credit bureaus, damaging your credit rating and affecting your ability to buy a car or house or to get a credit card.
This article originally appeared on Austin American-Statesman: Unpaid student loans will soon go to debt collection, officials say
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