Defaulted Student Loans to Collections May 5 Urgent Action Needed

The US Department of Education has announced that student loans in default will be sent to collections starting May 5. This development requires immediate attention from borrowers who are currently in default, as it could lead to severe financial consequences.

Secretary of Education Linda McMahon emphasized that the executive branch lacks the constitutional authority to forgive debt, urging borrowers to take action before collections resume. Defaulted loans are at risk of wage garnishment, tax refund offsets, and Social Security garnishment.

Borrowers whose loans are delinquent but not yet in default still have options. They can explore income-driven repayment plans, deferment, or forbearance by contacting their loan servicer. However, they should be prepared for potential long wait times.

For those already in default, loan rehabilitation or consolidation are viable paths to recovery. Rehabilitation involves making nine consecutive on-time payments based on income, which removes the default status from the credit report. Consolidation, while quicker, does not remove the default from credit history and may add interest and collection costs.

Borrowers enrolled in the Saving for a Valuable Education (SAVE) repayment plan are currently on hold due to a court order, but payments are expected to resume soon. In the meantime, they can explore other repayment options using tools like the student loan simulator at StudentAid.gov.

The Department of Education had paused student loan payments in March 2020 due to the pandemic, but this pause ended in September 2023, with a 12-month on-ramp for borrowers to resume payments. It's crucial for borrowers to act now to avoid the negative impacts of default.