Latest news with #FFEL-program
Forbes
05-05-2025
- Business
- Forbes
Student Loan Collections Starts Today—5 Ways To Avoid Being Garnished
WASHINGTON, DC - APRIL 30: Education Secretary Linda McMahon speaks during a Cabinet meeting at the ... More White House on April 30, 2025 in Washington, DC. McMahon announced the resumption of collections efforts against defaulted federal student loan borrowers earlier that month. (Photo by) The Department of Education is set to resume collections activities against defaulted federal student loan borrowers on Monday. The collections system had been largely suspended for more than five years, largely due to pandemic-era relief programs. But those programs have now expired, and the Trump administration signaled last month that efforts to forcibly collect from defaulted federal student loan borrowers will quickly ramp up. 'The Department has not collected on defaulted loans since March 2020,' said a department announcement last month. 'Resuming collections protects taxpayers from shouldering the cost of federal student loans that borrowers willingly undertook to finance their postsecondary education.' '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 last month accompanying the announcement. 'Going forward, the Department of Education, in conjunction with the Department of Treasury, will shepherd the student loan program responsibly and according to the law, which means helping borrowers return to repayment—both for the sake of their own financial health and our nation's economic outlook.' The collections activities will commence this week with the resumption of the Treasury Offset program. Treasury Offset authorizes the government to intercept federal tax refunds, garnish Social Security payments, and offset other federal income streams, including federal salaries. Administrative wage garnishment, which allows the government to seize a portion of a borrower's employment income from private and public employers, will resume later this summer. Federal student loan collections actions can have significant financial ramifications for student loan borrowers. Here's how to protect yourself. Only federal student loans that are in a default status can be subject to Treasury Offset and administrative wage garnishment. 'Default' is a term that has a specific definition under federal law for Direct and FFEL-program loans: the loan must be past due by at least 270 days (roughly the equivalent of nine months) to be in default. 'For a loan made under the William D. Ford Federal Direct Loan Program or the Federal Family Education Loan Program, you're considered to be in default if you don't make your scheduled student loan payments for at least 270 days,' says Department of Education guidance. If you are in regular repayment on your student loans under an approved repayment plan, you are not in default. In addition, certain periods of non-payment (such as a deferment, a forbearance, or a grace period) do not constitute default, even though no payments are being made. To verify whether you have a defaulted federal student loan, log into your account at Your account dashboard will summarize your outstanding federal student loans and should alert you if you have any accounts that are in default. If you have fallen behind on your federal student loans, that's not ideal. Missing payments on a student loan is known as 'delinquency,' and can lead to late fees and negative credit reporting. But there may still be time to avert default, cure the delinquency, and bring your account back to good standing again. 'The first day after you miss a student loan payment, your loan becomes past due, or delinquent,' says Department of Education guidance. 'If you are delinquent on your student loan payment for 90 days or more, your loan servicer will report the delinquency to the national credit bureaus, which can negatively impact your credit rating. If you continue to be delinquent, you risk your loan going into default.' If you are less than 270 days past due on a federal student loan, there may be time to avert default. You can pay the past due balance, or you can contact your loan servicer to request a retroactive deferment or forbearance; this can cancel out the past due balance and bring the account current. Borrowers who apply for an income-driven repayment plan, a type of payment plan tied to income and family size, may be put into an administrative forbearance to suspend payments while their application is processed. While a loan must be in good standing to qualify for certain federal student loan forgiveness programs like Public Service Loan Forgiveness or Teacher Loan Forgiveness, certain administrative discharge programs are available regardless of the loan's status. One of the most popular administrative discharge programs is the Total and Permanent Disability Discharge program, also referred to as TPD Discharge. This program allows borrowers to request cancellation of their federal student loans if they are unable to engage in substantial, gainful activity due to a severe medical impairment. The Department of Education recently resumed processing TPD Discharge applications after a pause earlier this year during a system transition. There are also several school-based discharge options. These programs include a Closed-School Discharge if a borrower was unable to complete their program due to a school closure, and an Ability to Benefit discharge if they did not have a high school diploma or GED at the time of enrollment, and their school did not adequately test their ability to benefit from the educational program. Borrowers can also pursue a discharge of their federal student loan debt through bankruptcy. It is difficult, but not impossible, to do this. A borrower must be able to demonstrate that repayment of their student loan would be an undue hardship; to do that, they must initiate an adversary proceeding against their lender (which, for Direct federal student loans is the government) in the bankruptcy court. A new financial attestation process can make it easier for some borrowers to pursue a bankruptcy discharge. If you're in default on a federal student loan, you may have pathways to get out of default and back into good standing again. Doing so can allow a borrower to avoid involuntary collections actions such as Treasury Offset and administrative wage garnishment. However, default resolution programs can come with some downsides. One option is loan rehabilitation, which is a temporary payment program typically lasting nine to 10 months. Borrowers make payments based on their income during the rehabilitation period. After successful completion of the rehabilitation program, their student loan would be restored to good standing again, eliminating any immediate risk of offset or wage garnishment. Rehabilitation can also result in the deletion of any default-related credit reporting, although the record of missed payments can remain in a borrower's credit report for some time. Borrowers should be aware that FFEL guaranty agencies and the Department of Education are authorized under law to charge hefty collections fees, which can be rolled into the overall loan balance upon completion of the rehabilitation program. Another default resolution option is Direct loan consolidation, which allows borrowers to take out a new loan through the Department of Education that repays any federal student loans that are in default. There is no credit check associated with this process, and borrowers do not have to make payments while in default to consolidate (unlike for rehabilitation), but they must select an income-driven repayment plan for the Direct consolidation loan. Consolidation does not delete any 'default' reference on a borrower's credit report, and – like rehabilitation – can come with significant collections fees. Consolidating loans that have existing IDR credit toward student loan forgiveness can also result in the erasure of that credit. A final default resolution option would be settlement. However, settlements of defaulted federal student loans are governed by fairly strict guidelines, which limits any resulting balance reduction. Settlements typically must be paid in a lump sum payment, which may be prohibitively expensive for many borrowers. There may also be tax consequences associated with a settlement. Before the federal government can refer a defaulted federal student loan borrower to Treasury Offset or start garnishing their wages, borrowers must receive an initial notice and an opportunity to respond. The response window is 65 days for Treasury Offset, and 30 days for administrative wage garnishment. Federal student loan borrowers can dispute the debt during this notice window, or apply for an administrative discharge if they qualify. They can also request a hearing based on financial hardship, which requires that the borrower complete and submit a detailed financial statement form (which typically accompanies the notice paperwork). Any offset or garnishment should be postponed while the borrower's request is adjudicated, as long as the request is made within the notice period. After offset or wage garnishment has begun, borrowers can still object or request a hearing, but that won't stop the offset or garnishment unless the borrower ultimately prevails.
Forbes
23-04-2025
- Business
- Forbes
What Student Loan Borrowers Should Know About The New Collections Crackdown By The Department Of Education
NEW YORK, NEW YORK - MARCH 07: United States Secretary of Education Linda McMahon visits "Fox & ... More Friends" at Fox News Channel Studios on March 07, 2025 in New York City. McMahon recently announced that collections would resume against defaulted federal student loan borrowers.(Photo by) More than five million student loan borrowers are in the Department of Education's crosshairs after the Trump administration announced new collections efforts targeting those in default on their federal student loans earlier this week. These borrowers may soon be subject to draconian collections actions by the government including wage garnishment and the offset of Social Security payments and other federal income streams. Millions of additional borrowers may also be targeted as they begin to fall further behind on their monthly payments. '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 on Monday. 'Going forward, the Department of Education, in conjunction with the Department of Treasury, will shepherd the student loan program responsibly and according to the law, which means helping borrowers return to repayment—both for the sake of their own financial health and our nation's economic outlook.' Student loan borrower advocacy groups were critical of the department's decision to resume collections actions after a five year pause, particularly as many borrowers are struggling to navigate a complex repayment system that has been upended by legal challenges and administrative changes. 'Since February, Donald Trump and Linda McMahon have blocked these borrowers' path out of default and are now feeding them into the maw of the government debt collection machine,' said Mike Pierce, Executive Director of the Student Borrower Protection Center, in a statement. "This is cruel, unnecessary, and will further fan the flames of economic chaos for working families across this country." Here's what student loan borrowers need to know about the Department of Education's crackdown on defaulted federal student loan borrowers. The newly announced collections efforts by the Department of Education will target borrowers who are in default on their federal student loans, including Direct loans and FFEL-program loans. Under federal law, default occurs after a borrower falls more than 270 days behind on their monthly payments (prior to that 270-day threshold, the loan is considered to be 'delinquent' or past due). More than five million borrowers are currently in default on their federal student loan, according to the department. 'More than 5 million borrowers have not made a monthly payment in over 360 days and sit in default—many for more than 7 years,' said the department in a statement on Monday. But additional borrowers are delinquent on their federal student loans and may go into default within the next several months, which could dramatically increase the total number of borrowers who will be facing the department's collections efforts. 'Only 38 percent of borrowers are in repayment and current on their student loans,' said the department. '4 million borrowers are in late-stage delinquency (91-180 days). As a result, there could be almost 10 million borrowers in default in a few months. When this happens, almost 25 percent of the federal student loan portfolio will be in default.' The Department of Education intends to deploy two primary collections programs against defaulted federal student loan borrowers: Treasury Offset, and administrative wage garnishment. Both of these programs were effectively shut down in 2020 due to the Covid-19 pandemic, and haven't resumed operating since then, until now. Treasury Offset is a broad program that allows the government to intercept federal tax refunds, offset federal benefits (such as Social Security payments), and seize other federal income streams such as the salaries of federal employees and payments sent to individual federal contractors. 'FSA will restart the Treasury Offset Program, administered by the U.S. Department of Treasury, on Monday, May 5, 2025,' said the department in its announcement. Separately, the department will also pursue administrative wage garnishment against borrowers in default on their federal student loans. Through administrative wage garnishment, the government can order a private or public employer to withhold a portion of a borrower's employment earnings (typically 15%) and transfer it to the Department of Education. The government can do this without filing a lawsuit or going through a court. The department indicated it will initiate the process to garnish wages this summer. To go after a borrower's assets, such as bank accounts or property, the Department of Education would have to file a lawsuit against the borrower in court and obtain a judgment. The Trump administration has not indicated whether any collections lawsuits are planned as part of the department's broader collections efforts. The Department of Education said that it will initiate outreach efforts to defaulted federal student loan borrowers before collections activities resume next month. However, the department did not address how such efforts may be impacted by the fact that the department's staff has been effectively cut in half by mass firings and resignations, as the Trump administration takes steps to shutter it. 'All borrowers in default will receive email communications from FSA over the next 2 weeks making them aware of these developments' and urging them to contact the department, reads Monday's statement. 'FSA will conduct outreach to borrowers through emails and social media reminding them of their obligations and providing resources and support to assist them.' Once the government begins pursuing Treasury Offset or administrative wage garnishment against defaulted federal student loan borrowers, certain procedures must be followed. In particular, borrowers are entitled to an initial notice and an opportunity to respond or object. 'All FSA collection activities are required under the Higher Education Act and conducted only after student and parent borrowers have been provided sufficient notice and opportunity to repay their loans under the law,' said the department. Typically, borrowers in default on their federal student loans have 65 days to respond to a Treasury Offset notice, and 30 days to respond to an administrative wage garnishment notice. Within that timeframe, borrowers can dispute the debt, request an administrative hearing on the basis of hardship, or pursue a discharge of their federal student loans if they are eligible (such as if they are totally and permanently disabled). Borrowers can also avoid Treasury Offset or wage garnishment during the notice period by resolving their federal student loan defaults through a rehabilitation plan (a temporary payment plan based on the borrower's income) or Direct loan consolidation. These programs can restore the loans back to good standing, allowing the borrower to take advantage of various repayment plan options, as well as deferments and forbearances. However, these programs can also come with some downsides, such as hefty collections fees in some cases. Once the notice period passes, borrowers may still have options to submit an application to discharge their student loans (if they are eligible), request a hearing based on hardship, or pursue default resolution programs like rehabilitation or consolidation. However, if offset or garnishment has already begun, those actions typically won't stop until there is a resolution or a decision on the borrower's objection. And administrative wage garnishment in particular can make default resolution options more complicated (for instance, typically borrowers cannot consolidate their loans through the Direct consolidation program while in active wage garnishment). Student loan borrowers who are delinquent on their loans but haven't yet defaulted may have options to avoid default and collections altogether. These options can include requesting a deferment or forbearance (which can bring the account current, voiding out any past delinquency), and applying for income-driven repayment plans. IDR plans offer borrowers affordable payments tied to their income and family size. While the IDR processing system remains in turmoil, the Department of Education has indicated that borrowers who apply for an IDR plan will be moved into a forbearance while their application is processed.
Forbes
02-04-2025
- Health
- Forbes
Department Of Education Reopens Key Student Loan Forgiveness Program
WASHINGTON, DC - FEBRUARY 13: Linda McMahon, President Donald Trump's nominee to be Secretary of ... More Education, arrives for her Senate Health, Education, Labor and Pensions Committee confirmation hearing in the Dirksen Senate Office Building on February 13, 2025 in Washington, DC. (Photo by) The U.S. Department of Education formally reopened a critical student loan forgiveness program for borrowers with medical impairments last week, paving the way for people to apply after a temporary hiatus. The Total and Permanent Disability discharge program can wipe out the federal student loan debt for borrowers who are unable to work (or can work only minimally) due to a medical condition. Nelnet, an external loan servicer contracted with the Department of Education, had operated the TPD discharge program for years. But as part of a long-planned transition, the program has now been moved to a new portal at the Department of Education's centralized website. The department had paused the application process during the platform transition. But as of last week, the new TPD portal is up and running. The TPD discharge program allows borrowers to apply for student loan forgiveness on the basis of a disabling medical impairment. Direct federal student loans, FFEL-program loans, and federal Perkins loans are eligible. To qualify, borrowers must be able to demonstrate that they are unable to engage in 'substantial, gainful activity' due to a physical or psychological impairment that has lasted for the last five years, is expected to continue for the next five years, or is terminal. There are three ways student loan borrowers can demonstrate that they qualify for a TPD discharge. Borrowers who are certified by the Veterans Administration as being 100% disabled due to a military service-connected impairment can automatically qualify, as can certain recipients of Social Security disability benefits (such as those who have been receiving such benefits for five years or more, or are on a medical review cycle of five years or more). 'We work with VA and the SSA to identify those who qualify for a discharge based on their status with VA or the SSA,' says the Department of Education. 'If we receive information from the appropriate agency indicating that you qualify for a TPD discharge, we'll send you a letter notifying you of your eligibility for discharge.' Other borrowers can submit a medical provider's certification form with their TPD discharge application, where a designated medical provider would certify that the borrower meets the TPD discharge standard. The provider must also provide details on the medical diagnoses and associated impairments. A doctor, physician's assistant, nurse practitioner, or licensed independent psychologist can complete the form. If the Department of Education approves the TPD discharge request, the borrower's federal student loan balance would be discharged. Borrowers may then be subject to a three-year post-discharge monitoring period, during which the discharged loans can be reinstated under certain circumstances, such as if the borrower returns to school and takes out a new federal student loan, or is determined by the Social Security Administration to no longer be disabled. The department no longer monitors a borrower's income during the three-year period, following rule changes made by the Biden administration. Borrowers who are approved for a TPD discharge under the Veterans Administration prong are not subject to any post-discharge monitoring. The Department of Education had put the entire TPD discharge application and processing system on hiatus starting in January due to the planned platform transition from Nelnet to This is similar to what happened with the Public Service Loan Forgiveness program last year. PSLF can provide student loan forgiveness for borrowers who work in nonprofit or government jobs for 10 years or longer. The PSLF program had been handled by MOHELA, another external loan servicer, but was transitioned to last summer after an extended processing pause. As of late March, that TPD discharge transition appears to have been completed. Borrowers can now apply for student loan forgiveness through the program at 'If you haven't received an automatic discharge letter, you can submit a TPD discharge application digitally or manually (using a paper form),' says the department's updated TPD discharge website. To apply online, borrowers should 'Log in to with your account username and password and navigate to the TPD Application page,' says department guidance. 'On the disability info page, select the option that best describes your situation. Upload supporting documentation of your eligibility for discharge (there will be prompts). Sign and certify your TPD Discharge Application.' The new online application system allows both the borrower and the medical provider (if applicable) to digitally sign via the portal, similar to the relatively new PSLF employment certification system. Alternatively, borrowers can apply manually using a paper or PDF version of the application. "On the disability info page, select the option that best describes your situation; upload supporting documentation of your eligibility for discharge' via the TPD discharge portal," suggests the department. 'Choose the manual signature option (after completing the online application, you will receive a link to download a PDF version to sign and submit). Print your application. Sign your application. If you selected certification from a medical professional have them sign your printed application.' Only hand-drawn signatures are accepted for manually signed application forms, although scanned signatures are accepted. Borrowers can then upload the completed TPD discharge application materials or submit them via fax or regular mail. 'This method will take longer' to process than the online application tool, however, warns the department. Some advocates are concerned that the backlog of TPD discharge applications associated with the three-month processing pause, as well as recent major staff cuts at the Department of Education by the Trump administration, may lead to lengthy delays and longer processing times. Since applications just reopened, it's too soon to know whether such delays are happening. But borrowers should be aware of the possibility, as the PSLF program experienced similar delays and backlogs after its transition last summer. 'Even after the processing pause is over, borrowers should expect delays in getting updates about their TPD application status,' said the National Consumer Law Center in a blog post earlier this year. 'The Department of Education and its contractors will likely have a backlog of applications that will take time to process.' Borrowers applying for student loan forgiveness through the TPD discharge program can try to pause their monthly payments while they work on completing the application materials. 'To get relief while you apply for TPD discharge, you can get your student loan payments paused for 120 days," says the department. "You just need to let your servicer know you're planning to apply for TPD discharge.' Borrowers can also have a designated representative help them with the TPD application process. This can be a trusted family member or friend, a social worker, or an attorney. 'You can designate an individual or organization to complete and submit your TPD discharge application on your behalf and to assist you throughout the discharge process,' says department guidance. 'For example, you might designate a family member, or you might designate an organization such as a veterans' service organization.' The borrower and representative would need to complete and submit a TPD designated representative form, which would allow the Department of Education to work with the representative on the borrower's behalf. It's also important to note that the TPD discharge could be a taxable event for some borrowers. 'The amount of your loan that's discharged due to TPD discharge may be considered income for state tax purposes,' says the department. 'Consult with your state tax office or a tax professional before you file your state tax return. Whether your discharged loan amount may be considered income for federal tax purposes depends on when you received the discharge.' Borrowers who are approved for a TPD discharge via the Social Security or medical provider's certification prongs are considered to have had their student loans forgiven for tax purposes after the three-year monitoring period ends. Federal taxation on TPD discharges and other types of federal student loan forgiveness was halted under laws passed by Congress in 2017 and 2021. However, that tax relief is set to end at the end of this year. It is unclear whether the current Congress will extend some, or any, of that relief.
