The Revival of Collection Activity on Federal Student Loans
The U.S. Department of Education has announced that it will resume the process of involuntary collections, including wage garnishments, on May 5. This marks the end of a five-year hiatus on collection activity on federal student loans.
What Borrowers Need to Know
Borrowers will be aware of the new policy through an email they will receive over the next two weeks. They can contact the government’s Default Resolution Group to get current on their loans and pursue different avenues to avoid collection activity.
Collection Activity and Its Consequences
The U.S. government has extraordinary collection powers on federal debts, which can seize borrowers’ federal tax refunds, wages, and Social Security retirement and disability benefits. In some cases, borrowers can also be sued by the U.S. Department of Justice, and face a levy on the funds in their bank accounts.
- Wage garnishments can range from 15% of disposable pay to the entire federal tax refund.
- Carry over balances can be levied against borrowers’ federal tax refunds and lottery winnings.
- Bank levies can be made on borrowers’ bank accounts.
Consequences of Resumed Collection Activity
Borrowers who default on their loans can face significant consequences, including wage garnishments, Social Security benefit reductions, and loss of federal tax refunds. Losing a portion of their Social Security benefits to repay student loans could mean not having enough for basic necessities, experts warn.
Examples of Collection Activity
* **Wage Garnishments:** The federal government can garnish up to 15% of a borrower’s disposable pay without a court order. Wages of federal workers may be easier to seize. * **Social Security Benefits Reductions:** Borrowers can see up to 15% of their monthly Social Security benefit reduced to pay back their defaulted student debt. However, beneficiaries need to be left with at least $750 a month. * **Federal Tax Refund Seizure:** The federal government can intercept borrowers’ federal tax refunds, including any refundable credits.
Preventing Collection Activity
Borrowers can take steps to get out of default and avoid collection activity. These include:
- Enrolling in an income-driven repayment plan
- Signing up for loan rehabilitation
- Requesting a retroactive forbearance to cover missed payments
- Requesting a temporary forbearance until borrowers can get enrolled in an income-driven repayment plan
- Disputing offsets to Social Security benefits
Protecting Your Rights
If you’re facing garnishment of your Social Security benefits or wages, the government is required to provide you with notice before it starts its collection activity. You may have the option to have a hearing before an administrative law judge within 30 days of receiving a wage garnishment order. Your wages may be protected if your employment has been spotty, or if you’ve filed for bankruptcy.
What You Can Do
If you’re facing collection activity, you can:
* Contact the government’s Default Resolution Group
* Pursue different avenues to get current on your loans
* Request a retroactive forbearance to cover missed payments
* Request a temporary forbearance until you can get enrolled in an income-driven repayment plan
* Dispute the offsets to your Social Security benefits
* Have a hearing before an administrative law judge
Conclusion
The revival of collection activity on federal student loans will have a significant impact on borrowers. It’s essential to be aware of the new policy and take steps to protect your rights. By understanding your options and taking proactive measures, you can avoid collection activity and get back on track with your loan payments.
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