For roughly the past five years, federal student loan borrowers who fell behind on their bills didn’t need to worry about the usual consequences, including the garnishment of their wages and retirement benefits. However, this will soon change.
According to a U.S. Department of Education memo, dated January 13, collection activity may resume as early as this summer for federal student loan borrowers who have defaulted on their loans. The memo outlines that wages could be garnished as early as October of this year, and Social Security benefits could be offset as early as August.
The Biden administration has taken steps to help defaulted borrowers, including allowing them to enroll in the Income-Based Repayment (IBR) plan and have a pathway to forgiveness. Currently, borrowers must exit default before they can access income-driven repayment plans, such as IBR, which aims to set borrowers’ monthly bills at a number they can afford.
Additionally, the administration has moved to protect a higher amount of people’s Social Security benefits from the department’s collection powers. When collection consequences resume, those with a monthly Social Security benefit under $1,883 will be able to protect those benefits from offset, compared to the current protected amount of $750.
Borrowers who are already in default should contact their loan servicer to talk about resolving the issue, said Betsy Mayotte, president of The Institute of Student Loan Advisors. Rehabilitating or consolidating one’s debt may be options to get out of default.
Those who aren’t already in default should contact their loan servicer to avoid default and explore options such as income-driven repayment plans, deferment, or forbearance.