- Personal Finance. Will your wages be garnished for student loans? These borrowers won't be affected as collections resume
- Personal Finance. If you have student loans in default, what happens now that debt collection resumes?
The federal government is resuming collections on defaulted student loans after a five-year pause, and nearly 200,000 borrowers are now facing wage and benefit garnishment.
This move, announced by the Department of Education, means that people in default could soon see money taken from their paychecks, tax refunds, and even Social Security checks. all without a court order. For many, this could have a serious financial impact, especially as the first offsets are scheduled to begin in early June.
What borrowers in default need to know right now
The restart of these aggressive collection efforts comes as part of the Treasury Offset Program, which allows the government to seize up to 100% of certain federal payments, including tax refunds and travel reimbursements.
For those in default, defined as loans that are 270 days past due, the window to act is closing fast.
The Department of Education is urging affected borrowers to take immediate steps to avoid garnishment.
If you're unsure about your loan status, to your StudentAid.gov or your loan servicer.
If your loans are in default, there are three main ways to stop collections before they begin:
- Apply for a direct loan consolidation
This is one of the fastest routes out of default. It allows you to combine your existing loans into a new Direct Consolidation Loan.
In most cases, you'll need to either enroll in an income-driven repayment plan or make three timely payments before consolidating.
Keep in mind, however, that while consolidation halts collection activity, it doesn't erase the default from your credit record, and you may incur additional fees and interest.
- Enter a loan rehabilitation program
If your goal is to rebuild your credit, rehabilitation may be a better option.
By making nine monthly payments based on your income, your loan can be removed from default status, and the default itself gets erased from your credit report.
But be aware: if garnishment has already started, those rehabilitation payments will be in addition to the amounts already being withheld from your income.
- Pay off the balance in full
This is the least common solution, but if you can pay your loan off entirely within 65 days of being notified, you can completely avoid collections and credit damage.
This route is more viable for borrowers who have access to resources or assistance.
Time is critical.
With offsets beginning in June, borrowers in default must act now to avoid financial disruption.
Whether through consolidation, rehabilitation, or repayment, taking the first step today can prevent serious consequences tomorrow.