Avoid Student Loan Default Collections by Acting Before May 5 Deadline

The US Department of Education has announced that student loan payments and collections will resume on May 5, ending a five-year pause. This means wage garnishment for defaulted loans will begin this summer, affecting millions of borrowers who have not made payments in over 360 days.

Loans become delinquent after 90 days past due, damaging credit scores, and enter default status after 270 days, triggering severe consequences like wage garnishment. Over 5 million borrowers currently sit in default, many rushing to resolve their status before the May 5 deadline.

Borrowers can check their loan status via StudentAid.gov or their loan servicer. If in default, there are three primary options to avoid collections:

• Direct Loan Consolidation: This is the fastest way to exit default besides paying off the loan. Consolidation stops collection activity but does not remove the default from credit history. Borrowers may enter income-driven repayment plans or make three on-time payments to qualify.
• Loan Rehabilitation: Requires nine consecutive on-time payments based on income. After completion, the loan is out of default and the default record is removed from credit reports, though delinquencies remain. Rehabilitation may be preferable for credit rebuilding.
• Pay Off Entire Balance: Paying off the full loan balance within 65 days of default notification avoids collections and negative credit reporting. This option may be challenging for financially strained borrowers but is the most definitive solution.

With the May 5 deadline approaching, experts urge borrowers in default to act swiftly to prevent wage garnishment and further credit damage. Understanding the pros and cons of each option can help borrowers choose the best path for their financial goals and credit health.

Navigating student loan default resolution requires timely action and informed decisions. Whether consolidating loans, entering rehabilitation, or paying off balances, borrowers must weigh credit implications and eligibility criteria carefully to safeguard their financial futures.