Latest news with #EducationDebtConsumerAssistanceProgram
CNBC
17-07-2025
- Business
- CNBC
Student loan borrowers may be left with 'no affordable options' under Trump plan changes, advocate says
As the Trump administration overhauls the federal student loan repayment system, borrowers may soon find it difficult to keep up with their monthly payments, consumer advocates said. The SAVE, or Saving on a Valuable Education, plan, touted by the Biden administration as the most affordable repayment program ever, is now defunct. President Donald Trump's "big beautiful bill" phases out several other income-driven repayment plans, which were aimed at making payments manageable for student loan holders. "In many instances, borrowers will be left with no affordable options, increasing the risk of default," said Nancy Nierman, assistant director of the Education Debt Consumer Assistance Program in New York City. The U.S. Department of Education did not immediately respond to a request for comment. Here are the biggest changes to federal student loan repayment under Trump, so far. The Biden administration rolled out the SAVE plan in summer 2023. The repayment plan's terms were the most generous to date; under the program's rules, many borrowers' monthly bills would have dropped by as much as half. But just as many of the plan's benefits were going into effect, Republican-led legal challenges blocked the program. Unlike the Biden administration, Trump officials have not fought in the courts to preserve SAVE, and recently Congress repealed the plan altogether. More from Personal Finance:Trump's 'big beautiful bill' slashes CFPB funding78% say Trump's tariffs will make it harder to deal with debtTax changes under Trump's 'big beautiful bill' — in one chart The Education Department announced on July 9 that the interest-free payment pause that the Biden administration had enrolled SAVE borrowers in during the legal challenges will expire on Aug.1. Secretary of Education Linda McMahon said in a statement that borrowers in SAVE should "quickly transition to a legally compliant repayment plan — such as the Income-Based Repayment Plan." But under the other existing repayment plans, borrowers will see their bills "jump up unexpectedly," said Malissa Giles, a consumer bankruptcy attorney in Virginia. "I cannot imagine the stress that will be put on folks," she said. Higher education expert Mark Kantrowitz said, "We can expect payments under IBR to be more than double payments under SAVE." Under Trump's "big beautiful bill," borrowers who take out federal student loans after July 1, 2026, will have just two repayment plans to choose from, compared with roughly a dozen options now. Existing borrowers will maintain access to other repayment options. New student loan borrowers could enroll in either a standard repayment plan with fixed payments or a single income-based repayment plan: the "Repayment Assistance Plan," or RAP. Preston Cooper, a senior fellow at the conservative policy research organization American Enterprise Institute, wrote in a recent blog post that "scheduled monthly payments under RAP are significantly higher than those under the Biden administration's SAVE plan for borrowers of the same income levels." Cooper provided an example of a borrower who earns $80,000 per year: their monthly bill under RAP will be $533, whereas it would be $179 with SAVE, he wrote. "The student borrowers for whom the SAVE plan was the only affordable option will be severely impacted by these changes," said Nierman, of the Education Debt Consumer Assistance Program.
CNBC
17-05-2025
- Business
- CNBC
How student loan borrowers can avoid default as Trump administration ramps up collection efforts
As the Trump administration ramps up its student loan collection efforts, worried borrowers need to ask themselves a key question: Am I delinquent, or in default? The answer determines your best next steps. "We've had a lot of clients contacting us recently who are extremely stressed and, in some cases panicked, about their loan situation," said Nancy Nierman, assistant director of the Education Debt Consumer Assistance Program in New York. More from Personal Finance:How many consumers are preparing for an economic hitWhy Americans think real estate, gold are the best long-term investmentsTrump tariffs sparked 'uptick' in I bond interest, advisor says. What to know However, some borrowers wrongly believe they'll be subject to wage garnishments or offsets of their retirement benefits — when in fact they are delinquent but not yet in default, Nierman said. If you're delinquent, there are things you can do to avoid default. And even those who are in default and at risk for collections can take steps to avoid such outcomes. "The federal student loan system does provide several paths for bringing loans out of default," she said. Just because you're behind on your payments doesn't mean you're in default. Your student loan becomes past due, or delinquent, the first day after you miss a payment, according to the U.S. Department of Education. Nearly 8% of total student debt was reported as 90 days past due in the first quarter of 2025, the New York Fed recently found. Once you are delinquent for 90 days or more, your student loan servicer will report your past due status to the national credit bureaus, which can lead to a drop in your credit score. The Federal Reserve predicted in March that some people with a student loan delinquency could see their scores fall by as much as 171 points. (Credit scores typically range from 300 to 850, with around 670 and higher considered good.) Lower credit scores can lead to higher borrowing costs on consumer loans such as mortgages, car loans and credit cards. But you're not considered to be in default on your student loans until you haven't made your scheduled payment in at least 270 days, the Education Department says. The federal government has extraordinary collection powers on its student loans and it can seize borrowers' tax refunds, paychecks and Social Security retirement and disability benefits. But only those who've defaulted on their student loans can face these consequences, experts said. Delinquent student loan borrowers should call their student loan servicer right away and request a retroactive forbearance for missed payments and then a temporary forbearance until they enroll in a repayment plan they can afford, according to the experts at the Education Debt Consumer Assistance Program. Some monthly bills under income-driven repayment plans wind up being as low as zero dollars. There are also economic hardship and unemployment deferments available for those who qualify, as well as other ways to keep your loan payments paused while not falling behind. Meanwhile, more than 5.3 million student loan borrowers are currently in default, and that total could swell to roughly 10 million borrowers within a few months, the Education Department estimates. You can contact the government's Default Resolution Group and pursue a number of different avenues to get current on your loans, including enrolling in an income-driven repayment plan or signing up for loan rehabilitation. You can get out of default on your student loans through rehabilitating or consolidating your debt, Nierman said. Rehabilitating involves making "nine voluntary, reasonable and affordable monthly payments," according to the U.S. Department of Education. Those nine payments can be made over "a period of 10 consecutive months," it said. Consolidation, meanwhile, may be available to those who "make three consecutive, voluntary, on-time, full monthly payments." At that point, they can essentially repackage their debt into a new loan. After you've emerged from default, experts also recommend requesting a monthly bill you can afford. If you don't know who your loan servicer is, you can find out at "Explore your options and create a plan for returning your loans back to good standing so you will not be subject to punitive collections activity," Nierman said.
NBC News
25-04-2025
- Business
- NBC News
'What payments can be garnished for my defaulted student loans?' Answers to questions as collections resume.
Many student loan borrowers recently got some unwelcome news: The U.S. Department of Education will restart the process of involuntary collections, including wage garnishments, as early as May 5. 'American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies,' said U.S. Secretary of Education Linda McMahon in a statement. For five years, collection activity on federal student loans has mostly been paused. The Biden administration took a less aggressive approach than the Trump administration, focusing on extending relief measures to struggling borrowers in the wake of the Covid pandemic and helping them to get current. 'People who default on loans typically truly cannot afford to pay them,' said James Kvaal, who served as U.S. undersecretary of education for former President Joe Biden. Outstanding federal education debt exceeds $1.6 trillion, with more than 42 million Americans holding the loans. There could be roughly 10 million borrowers in default within a few months, according to the Trump administration. Here are answers to questions borrowers may have about the upcoming collection activity. What payments can be garnished? The U.S. government has extraordinary collection powers on federal debts and it can seize borrowers' federal tax refunds, wages, and Social Security retirement and disability benefits, according to higher education expert Mark Kantrowitz. The federal government can intercept other funds such as state income tax refunds and lottery winnings, Kantrowitz said. In some cases, federal student loan borrowers can also be sued by the U.S. Department of Justice, and face a levy on the funds in their bank accounts, he said. How much money can be taken? Social Security recipients can typically see up to 15% of their monthly benefit reduced to pay back their defaulted student debt, but beneficiaries need to be left with at least $750 a month, experts said. Carolina Rodriguez, director of the Education Debt Consumer Assistance Program in New York, said she was especially concerned about the consequences of resumed collections on retirees. 'Losing a portion of their Social Security benefits to repay student loans could mean not having enough for food, transportation to medical appointments, or other basic necessities,' Rodriguez said. Meanwhile, your entire federal tax refund can be seized, including any refundable credits, Kantrowitz said. Fortunately, if you've already received your 2024 federal income tax refund, 'the government cannot claw it back,' Kantrowitz said. As for your wages, the federal government can garnish up to 15% of your disposable pay without a court order, Kantrowitz said. Wages of federal workers may be easier to seize, he added. How can I avoid collection activity? Take steps to get out of default and to try to avoid the start of any garnishments, experts said. Borrowers in default will receive an email over the next two weeks making them aware of the new policy, the Education Department said. You can contact the government's Default Resolution Group and pursue a number of different avenues to get current on your loans, including enrolling in an income-driven repayment plan or signing up for loan rehabilitation. Some borrowers may also be eligible for deferments or a forbearance, which are different ways to pause your payments, Rodriguez said. 'We're advising clients to request a retroactive forbearance to cover missed payments, and a temporary forbearance until they can get enrolled in an income-driven repayment plan,' she said. If you do end up facing the garnishment of your Social Security benefits or wages, the government is required to provide you with notice before it starts its collection activity, Kantrowitz said. For your wages, a 30-day warning is required, while 65 days' notice must be given before the seizure of Social Security benefits, he said. You may have the option to have a hearing before an administrative law judge within 30 days of receiving a wage garnishment order, Kantrowitz said. Your wages may be protected if your employment has been spotty, or if you've filed for bankruptcy, he said. 'Borrowers can also challenge the wage garnishment if it will result in financial hardship,' Kantrowitz said. You can dispute the offsets to your Social Security benefits, too, he said, by contacting the Education Department. The notice you receive should provide information on whom to contact.
CNBC
25-04-2025
- Business
- CNBC
'What payments can be garnished for my defaulted student loans?' Answers to questions as collections resume
Many student loan borrowers recently got some unwelcome news: The U.S. Department of Education will restart the process of involuntary collections, including wage garnishments, as early as May 5. "American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies," said U.S. Secretary of Education Linda McMahon in a statement. For five years, collection activity on federal student loans has mostly been paused. The Biden administration took a less aggressive approach than the Trump administration, focusing on extending relief measures to struggling borrowers in the wake of the Covid pandemic and helping them to get current. "People who default on loans typically truly cannot afford to pay them," said James Kvaal, who served as U.S. under secretary of education for former President Joe Biden. More from Personal Finance:What student loan borrowers need to know about 'involuntary collections'Nearing retirement? These strategies can protect savings from tariff volatilityExperts see higher stagflation risks. Here's what it means for your money Outstanding federal education debt exceeds $1.6 trillion, with over 42 million Americans holding the loans. There could be roughly 10 million borrowers in default within a few months, according to the Trump administration. Here are answers to questions borrowers may have about the upcoming collection activity. The U.S. government has extraordinary collection powers on federal debts and it can seize borrowers' federal tax refunds, wages and Social Security retirement and disability benefits, according to higher education expert Mark Kantrowitz. The federal government can intercept other funds such as state income tax refunds and lottery winnings, Kantrowitz said. In some cases, federal student loan borrowers can also be sued by the U.S. Department of Justice, and face a levy on the funds in their bank accounts, he said. Social Security recipients can typically see up to 15% of their monthly benefit reduced to pay back their defaulted student debt, but beneficiaries need to be left with at least $750 a month, experts said. Carolina Rodriguez, director of the Education Debt Consumer Assistance Program in New York, said she was especially concerned about the consequences of resumed collections on retirees. "Losing a portion of their Social Security benefits to repay student loans could mean not having enough for food, transportation to medical appointments, or other basic necessities," Rodriguez said. Meanwhile, your entire federal tax refund can be seized, including any refundable credits, Kantrowitz said. Fortunately, if you've already received your 2024 federal income tax refund, "the government cannot claw it back," Kantrowitz said. As for your wages, the federal government can garnish up to 15% of your disposable pay without a court order, Kantrowitz said. Wages of federal workers may be easier to seize, he added. Take steps to get out of default and to try to avoid the start of any garnishments, experts said. Borrowers in default will receive an e-mail over the next two weeks making them aware of the new policy, the Education Department said. You can contact the government's Default Resolution Group and pursue a number of different avenues to get current on your loans, including enrolling in an income-driven repayment plan or signing up for loan rehabilitation. Some borrowers may also be eligible for deferments or a forbearance, which are different ways to pause your payments, Rodriguez said. "We're advising clients to request a retroactive forbearance to cover missed payments, and a temporary forbearance until they can get enrolled in an income-driven repayment plan," she said. If you do end up facing the garnishment of your Social Security benefits or wages, the government is required to provide you with notice before it starts its collection activity, Kantrowitz said. For your wages, a 30-day warning is required, while 65 days' notice must be given before the seizure of Social Security benefits, he said. You may have the option to have a hearing before an administrative law judge within 30 days of receiving a wage garnishment order, Kantrowitz said. Your wages may be protected if your employment has been spotty, or if you've filed for bankruptcy, he said. "Borrowers can also challenge the wage garnishment if it will result in financial hardship," Kantrowitz said. You can dispute the offsets to your Social Security benefits, too, he said, by contacting the Education Department. The notice you receive should provide information on whom to contact.
