This decision affects approximately 5.3 million borrowers who were in default before the pause. For these borrowers, the government can soon begin collecting repayments from tax refunds, withholding Social Security benefits, and even garnishing wages (up to 15% of disposable income).
This change primarily impacts borrowers who were already in default before pandemic protections began. That amounts to around 5.3 million people, according to the Education Department. In this case, "in default" means a borrower failed to make a loan payment for at least 270 days (about nine months).
What to do if you're in default on your student loans
Borrowers in default have three main options.
2. Consolidation
This process combines and simplifies your existing federal student loans into a new Direct Consolidation Loan. Consolidation can lower your monthly payment, but increase the period of time you will have to repay your loan—resulting in more payments and more interest overall than if you didn’t consolidate. You can log in to studentaid.gov to access the online direct consolidation loan application.
3. Loan rehabilitation
Once out of default (or if you're at risk, but not yet in default), you'll need to select an appropriate repayment plan. The first step you can take here is to find out exactly how much you’re expected to pay. On studentaid.gov, select “My Aid” in the dropdown menu under your name. Your loan servicer(s) should appear in that section. Clicking on “Loan Breakdown” will show you a list of the loans you received, including loans you have paid off or consolidated into a new loan.
Remember that you can change your repayment plan as your circumstances change. For instance, if you're experiencing financial hardship, several options can help lower your payments:
Economic hardship deferments if you recently lost your job
What you can do about your defaulted student loans right now
The Department of Education should alert all borrowers in default before May 5, via email and social media posts. They also said they will send notices of wage garnishment "later this summer."
If you're in default, here are the immediate steps you can take:
Contact your loan servicer to discuss repayment plans.
Even if you're not in danger of default today, you could be soon. Student loans have a chokehold over millions of Americans, but you have a little bit of time to put yourself in the best position to tackle yours. By taking proactive steps now, you can avoid the more severe consequences down the line.
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