Student loan collections: Options to get out of default

ED resumes collection on defaulted student loans

The Department of Education resumes collections on student loans in default and many borrowers are already struggling to make ends meet could soon lose some of their income or tax refunds. FOX 26 Consumer Reporter Heather Sullivan has steps borrowers can take.

HOUSTON - Many student loan borrowers who are in default, and already struggling to make ends meet, could soon lose some of their income or tax refunds. The U.S. Department of Education is resuming collections on student loans in default after a five-year pause.

Collections on default student loans

What we know:

About 5 million federal student loan borrowers who are at least nine months behind on payments could start having their wages, tax refunds, or federal benefits garnished.

"They can start taking it right from your paycheck, taking it from tax refunds, if you work for the government, taking it from federal workers," explained Michael Neuenschwander of Outlook Wealth Advisors.

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Student loan collections on defaulted loans restart today: What to know

Student loans that are in default will be referred for collection, beginning on Monday, May 5. Here's what that means and what borrowers in default can do.

Borrowers in default will receive a notice in the next two weeks. If they're going to garnish your wages, you'll get a 30-day warning before it begins. They'll take a percentage of your paycheck that they think you can afford.

How could borrowers in default be affected?

Big picture view:

We talked with Persis Yu at the Student Borrower Protection Center.

"Particularly those who receive Social Security benefits, older borrowers and borrowers with disabilities, are losing some of those benefits," said Yu.

"And borrowers who have a tax refund that includes the Earned Income Tax Credit, one of the most important anti-poverty measures, can lose those benefits as well," added Yu.

Advocates for borrowers say not only will their credit scores go down, but they'll lose income at a time when they need it most.

"The cost of everyday living is going up, and the options for helping borrowers pay these loans have been in chaos for months," said Yu.

What you can do:

What can borrowers do? Contact your loan servicer because you do have options.

"One, as I mentioned, they call it an income-driven repayment plan, based on the size of your income, the size of your family," said Neuenschwander.

You can also rehabilitate the loan by making nine on-time payments, consolidate the loan for a lower payment, see if you qualify for loan forgiveness programs, take a deferment or forbearance, or pay the debt in full within 65 days.

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Neuenschwander says at the very least, pay something.

"Paying something will keep you out of default versus ignoring and thinking the problem is just going to go away," said Neuwenschwander.

Advocates for borrowers encourage them to prepare for long-wait calling loan servicers. Yu suggests if borrowers cannot get through, they can also reach out to their local Congressional office for help.