Collections to resume on defaulted federal student loans

(FOX 9) - The federal government on Monday will resume collections on defaulted student loans, putting more than five million borrowers at risk for wage garnishment and other remedies.

Borrowers in default face wage garnishment, tax refund interception

The backstory:

The federal government paused collections on defaulted student loans in March 2020 as the coronavirus pandemic took hold. 

The government extended the grace period multiple times, but it ended in October. 

Those in default will now be subject to wage garnishment and other remedies, including tax refund interception. The Education Department said it will begin wage garnishment over the summer.

By the numbers:

More than five million borrowers have defaulted on their student loans, meaning they have not made a payment in nearly a year, the Education Department said. Additionally, four million borrowers are delinquent, which means they have not made a payment in more than three months, the agency said.

What you can do:

If you are in default, you have three options: repay the loan in full or sign up for loan rehabilitation or loan consolidation. While it is the most immediate remedy, paying the balance in full is not practical for most borrowers. Loan rehabilitation, which involves making nine payments over the course of ten months, has the benefit of removing the default from your credit report. Loan consolidation involves rolling your existing loan into a new loan with a lower monthly payment. Loan consolidation does not remove the default from your credit history.

What they're saying:

"This could be a pretty big challenge for people," said Brian Walsh, a certified financial planner. "It’s really important now that things are much more settled to go through and figure out what’s the best approach, not just defaulting into what you’ve been doing."

What's next:

Collections are set to resume on Monday.