The Department of Education restarts collections of loans in default on Monday, putting millions of borrowers at risk of having their benefits and wages garnished. The move arrives as the Trump administration works to dismantle the Education Department and aggressively roll back former President Joe Biden’s policies, including those around student loan forgiveness. It’s expected to affect the more than 5 million borrowers who are in default. And that number could rise over the next few months: There are 4 million additional borrowers in “late-stage delinquency,” which occurs after 90 days without payment, the department said in a news release last month. Here’s what we know so far: What does it mean when federal student loans are in default? Federal student loans go into default after 270 days without payment. If you are not in default, the move to restart sending loans in default to collections will not affect you. How do I know if I am in default? When a student loan goes in default, it will be reflected on your credit report. You can check on the status of your loan by reaching out to your student loan servicer or visiting the Federal Student Aid website for more information. Experts who spoke with CNN recommend that even if you know your loans aren’t in default, you should still check on the status of your loans and stay informed on options available to you. How can the government garnish my wages and benefits? As part of its move to resume collection of these debts, the government has restarted the Treasury Offset Program, which collects debts by garnishing federal and state payments, such as tax returns or social security benefits. This will only apply to you if you are in default. The Education Department also said in April that it will restart the process of administrative wage garnishment this summer. That allows the agency to order non-federal employers to withhold part of an employee’s income to pay off the student loans in default. How do I get out of default? The Education Department has urged borrowers in default to contact the student aid office’s Default Resolution Group and make a monthly payment, enroll in an income-driven repayment plan, or sign up for loan rehabilitation. Loan rehabilitation Borrowers in default are able to rehabilitate their loans by making nine voluntary, uninterrupted payments over a 10-month period. A borrower can only rehabilitate a defaulted student loan one time. Read more on the process on the student aid office’s website here. Borrowers must first contact their loan servicer and agree in writing to make the payments. The amount of the payments is set by the loan holder, and borrowers must provide documentation of their income. It will be equal to either 10% or 15 % of your annual discretionary income, divided by 12, according to the Education Department’s website. If you don’t know who your loan servicer is, you can find out through the Office of Federal Student Aid here. After the nine consecutive payments are made, the loan will no longer be in default status and the default notice will be removed from your credit report – but having been in delinquency prior to the default will still be visible on your report. If administrative wage garnishment was in place before the rehabilitation process began, it would continue until the borrower has made at least five of the required nine payments. Loan consolidation Loan consolidation allows borrowers to combine multiple federal student loans into one loan with a single monthly payment and no application fee. Borrowers will have to pay any future interest on the higher balance, which could cause them to pay more overall. Borrowers can also switch to a different student loan servicer if they consolidate their loans. The Direct Consolidation Loan Application is available here. However, for borrowers on an income driven repayment plan and looking for forgiveness after 20 or 25 years, consolidation does “restart that clock,” student loan lawyer Jay Fleischman told CNN. Can I get additional relief while I’m in default? According to the Department of Education’s website, if you go into default, you can no longer receive deferment or forbearance, which allow you to temporarily stop making payments on your loan. You will also no longer have the ability to choose a repayment plan. However, “once borrowers complete loan rehabilitation or consolidate to cure the default, they regain access to deferment, forbearance, and income-driven repayment plans,” Fleischman said. “The loss of these options does not depend on the loan being sent to collections,” he noted. “When a borrower defaults, the law restricts these options until the loan is brought out of default.” Though the Trump administration is moving away from Biden-era efforts to forgive student loan debt, there are other ways for borrowers to “discharge” their debt. Can I get rid of my student loans if I go through bankruptcy? Unlike some other consumer loans, student loans can only be discharged if a borrower meets certain specific criteria. For some borrowers, this is possible if they’ve declared bankruptcy and demonstrate undue hardship. More student loan borrowers have successfully received debt relief through bankruptcy since the Biden administration simplified the burdensome process of showing undue hardship and made it easier for government lawyers to recommend to courts that the debt be discharged. “People should look at what’s called the Brunner Test, because that’s what’s used most of the time in bankruptcy for student loans, and if they think they might fit the criteria, it is something to explore,” student loan expert Betsy Mayotte told CNN. The Brunner Test requires showing that a borrower cannot maintain a minimal standard of living if forced to repay the student loans, that this financial situation will continue for the majority of the loan repayment period and that a good faith effort has been made to pay. While it is unclear if the Trump administration will maintain the Biden administration’s guidance, Malissa Giles, a consumer bankruptcy attorney from Virginia, told CNN her perception is that “the current administration will be less generous than the Biden administration was.” “I personally think that if you don’t meet those presumptive factors, then it’s going to be a lot, lot harder under this administration to get an agreed decision of a hardship discharge or reaching a hardship discharge,” she added. Make sure to watch out for scams Borrowers need to be aware of any scams that may deceive them with false promises of debt relief or more affordable payment plans. Student loan-related announcements like the one the Education Department made last month “make great talking points for scammers that go after some of the most vulnerable borrowers, and defaulted borrowers fall under that category,” Mayotte said. “There’s never a fee to access rehabilitation or consolidation, and paying someone a fee is not going to get it for you any faster, or get you a better deal than you can by just doing it yourself,” she explained. More information about avoiding student loan related scams can be found on the student aid office’s website here.
What the restart of defaulted student loan collection means for borrowers
TruthLens AI Suggested Headline:
"Department of Education Resumes Collections on Defaulted Student Loans, Impacting Millions"
CNN
7.2
TruthLens AI Summary
The U.S. Department of Education has officially resumed the collection of defaulted student loans, a decision that affects millions of borrowers, especially those who have not made payments for extended periods. This action is part of a broader agenda by the Trump administration to roll back policies established under former President Biden, particularly those related to student loan forgiveness. Approximately 5 million borrowers are currently in default, with an additional 4 million classified as in "late-stage delinquency"—a status that follows 90 days of missed payments. When federal student loans go into default after 270 days without payment, borrowers face serious repercussions, including potential wage garnishment and the loss of certain benefits. The Department has emphasized that borrowers who are not in default will not be impacted by this policy change, but it is crucial for all borrowers to stay informed about their loan status and options available to them through their loan servicers or the Federal Student Aid website.
To mitigate the consequences of default, the Department of Education encourages borrowers to explore options such as loan rehabilitation and consolidation. Rehabilitation allows borrowers to make nine consecutive payments to remove their loan from default status, while consolidation combines multiple loans into a single payment. However, borrowers must be aware that consolidating loans can reset their repayment timeline, potentially affecting their eligibility for future forgiveness programs. Furthermore, defaulted borrowers lose access to deferment and forbearance options until they rectify their loan status. As the Biden administration had previously streamlined the bankruptcy process for student loans, many are concerned that the current administration may impose stricter criteria for discharging student loan debt through bankruptcy. Borrowers are also warned to remain vigilant against scams that prey on vulnerable individuals seeking debt relief, as the resumption of loan collections may create opportunities for fraudulent schemes. The Department of Education advises borrowers to avoid any services that charge fees for loan rehabilitation or consolidation, as these processes can be completed independently at no cost.
TruthLens AI Analysis
The article outlines the significant implications of the U.S. Department of Education's decision to restart the collection of defaulted student loans. This development comes at a time when the current administration is actively reversing policies from the previous administration, specifically those related to student loan forgiveness. The article highlights the potential risks for millions of borrowers, especially those already in default or nearing delinquency.
Impact on Borrowers
The decision affects over 5 million borrowers in default, with an additional 4 million in late-stage delinquency. This large group of individuals is now at risk of wage garnishment and the loss of federal benefits, raising concerns about their financial stability. By emphasizing the government’s capability to garnish wages and benefits, the article aims to inform borrowers of the serious consequences of defaulting on student loans.
Public Perception and Awareness
The article aims to raise awareness about the status of student loans and encourages borrowers to check their loan status. It implies a sense of urgency for those who may not be informed about their financial obligations. This can create a perception of fear among borrowers regarding their financial future, especially those who might not be aware of the implications of defaulting.
Transparency and Hidden Agendas
While the article provides essential information, it may also downplay the broader context of policy changes occurring under the current administration. There might be a lack of emphasis on alternative solutions or protections for borrowers, which could lead to a skewed perception of the government's actions. The focus on default and collections could mask discussions about potential reforms or support that could mitigate the negative impacts on borrowers.
Manipulative Aspects
The language used in the article can be seen as somewhat manipulative. By portraying the restart of collections as an imminent threat, it creates a sense of urgency and fear. The framing of the issue might lead readers to feel helpless and overwhelmed, prompting them to react rather than reflect critically on the broader implications of these policy changes.
Truthfulness of the Article
The article is based on factual information regarding the Department of Education's actions and the consequences of defaulting on student loans. However, the selective emphasis on certain aspects can lead to a distorted understanding of the situation. It is essential for readers to critically evaluate the information presented and consider the broader context.
Potential Societal and Economic Consequences
The resumption of loan collections could exacerbate financial instability for millions of borrowers, potentially leading to increased economic distress. This situation may result in higher rates of bankruptcy and financial hardship, impacting the economy as a whole. Additionally, the political ramifications could influence future elections, as voters respond to the perceived handling of student debt issues.
Target Audiences
This article likely targets borrowers struggling with student debt, particularly those in default or at risk of defaulting. It appeals to those seeking clarity on their financial responsibilities and options available to them.
Market Impact
This news may have implications for companies involved in student loan servicing and collection. Investors may react to the expectations of increased collections and potential financial strain on borrowers, affecting stock prices in related sectors.
Global Context
While the article primarily focuses on domestic policy, the implications of student debt and loan collections can resonate beyond U.S. borders. As discussions around education financing take place globally, the U.S. experience may inform other nations facing similar challenges.
In conclusion, the article provides crucial information regarding the restart of student loan collections, but its framing may evoke fear and urgency among borrowers. The selective emphasis on certain aspects raises questions about transparency and broader implications of the current administration's policies.