Ed Sec McMahon's Clarion Call: No More Free Rides on Student Loans
Debt collectors start pursuing student loan defaulters for overdue payments.
Get ready, student loan delinquents, because starting May 5th, the hammer's coming down. Education Secretary Linda McMahon's announced that collections on defaulted federal student loans are being reinstated, halting a suspension that's been in effect since March 2020, as the U.S. braced for the coronavirus pandemic.
Here's the lowdown: After a monthlong announcement, millions of student loan borrowers in default will begin receiving notices that their accounts are being handed off to collections. This move is all about safeguarding U.S. taxpayers from bearing the cost of student loans that borrowers signed up for.
"Bye-bye, taxpayer bailout," declared McMahon in a released statement. "Defaulted student loans will no longer saddle Uncle Sam with the bill, as it's high time borrowers took responsibility for their actions." The Secretary's sentiments echo recent assertions that the executive branch lacks the constitutional authority to wave away loan balances, nor do they evaporate on their own.
The Department of Education explained that its Office of Federal Student Aid (FSA) will resume collections of its defaulted federal student loan portfolio starting May 5th. The collection moratorium, which saw its origins in the early days of the coronavirus pandemic, will finally end, leaving millions of borrowers in the hot seat.
Why the Staggering Default Rates?
As of now, approximately 42.7 million Americans owe a whopping $1.6 trillion in student debt. Worryingly, over 5 million have forsaken making monthly payments for more than 360 days, landing them in default, while around 4 million are stuck in late-stage delinquency (91-180 days). If the situation continues at this pace, up to 10 million could default in the coming months.
Those in default may soon find themselves facingEmail communications from FSA encouraging them to make good on their payments, enroll in income-driven repayment plans, or sign up for loan rehabilitation. Later this summer, the FSA will up the ante, sending out mandatory wage garnishment notices.
But Wait, There's More…
During the pandemic, a grace period on payments extended into 2023, but the Biden Administration decided to stretch that no-consequences period through the 2024 election as they attempted to pass loan forgiveness programs. According to The Wall Street Journal, the administration kept borrowers in a state of limbo, while their indebtedness ballooned and default rates soared.
The Department alleged that President Trump's Administration had failed to process applications for income-driven repayment plans and pursued "unorthodox" loan forgiveness schemes to gain favor with borrowers and mask escalating delinquency and default rates.
Penalties for those who default may include seizing federal benefits such as tax returns and Social Security checks, reports The Wall Street Journal. Be aware that the Department will issue official 30-day notices before taking any collection actions.
So, borrowers, it's time to roll up your sleeves and deal with those long-postponed loan payments or risk some serious financial consequences. For those who need a hand, the Department has launched communications and outreach initiatives to help you navigate your repayment options.
- The resumption of collections on defaulted federal student loans will affect millions, as the Office of Federal Student Aid (FSA) plans to restart its loan portfolio recovery starting May 5th.
- To mitigate the cost borne by U.S. taxpayers, the Department of Education aims to enforce repayment of defaulted student loans, with emails encouraging late payers to catch up, enroll in income-driven repayment plans, or opt for loan rehabilitation.
- With over 5 million Americans in default and up to 10 million at risk, the potential for deferred payers to face wage garnishment notices increases later this summer.
- The Biden Administration's decision to extend the payment grace period and pursue loan forgiveness programs has sparked controversy, with allegations of failed processing of income-driven repayment plans and pursuit of unconventional loan forgiveness schemes under the Trump Administration.
- To avoid financial repercussions like seizure of federal benefits such as tax returns and Social Security checks, delinquent borrowers are advised to address their loan situation proactively and explore the available finance resources for education-and-self-development, general-news, pension, and credit management.
