If you’re having trouble keeping up with student loan payments, you may have a little more breathing room to find a repayment plan that fits your budget before the Department of Education restarts collection actions.
Consumer Reports explains how to use this time to get ahead before your paycheck or tax refund is affected.
The Department of Education is transferring student loan operations to the Treasury.
And plans to start collections on federal loans in default for the first time since 2020.
Ordering employers to withhold up to 15 percent of a borrower’s disposable income to repay the defaulted loan.
Private collection agencies will be used to get borrowers to pay up.
And that’s creating a lot of anxiety.
“That would turn everything upside down,” said Pablo Pratt, a student loan borrower.
Pablo Pratt owes more than $140,000 in student loans and says his family has cut a lot of expenses just to keep up.
“Even with all of these changes, we’re still not able to pay the student loan minimum requirement,” Pratt said.
Up until now, borrowers had been getting some relief.
The Department of Education had delayed involuntary collection actions while it prepared for the transfer to Treasury. The move temporarily gave borrowers more time to understand their options and explore new repayment plans.
But now the government is stepping in and getting ready to take money from paychecks.
Consumer Reports says that if you can’t make your monthly student loan payments, it’s critical that you contact your loan servicer now.
“That’s the company that manages your loans,” said Chuck Bell with Consumer Reports. “They can walk you through your options, help you understand the programs you qualify for, and guide you toward a more manageable repayment plan.”
If your loans are already in default, which can trigger wage garnishment, there are two main ways to get back on track.
One option is loan rehabilitation. That means making a set number of monthly payments to bring your loan out of default.
You can also choose loan consolidation. This combines your defaulted loans into one new loan that’s back in good standing, but it may cost more over time.
And remember, once a loan goes into default, it’s reported to credit agencies, which can hurt your credit. So, addressing the issue now can go a long way toward protecting your financial future.
The Department of Education says if you are contacted by a company asking you to pay enrollment, suspscription or maintenance fees to help you get out of default, you should walk away. Your loan servicer will help you for free.