On Monday, the Education Department put borrowers on notice: If your federal student loan goes into default, either find a way to repay it or face having your paycheck, tax refund or social security check garnished.
About 1 million Massachusetts residents carry federal student loan debt. Among those, the number of people already in default on their federal loans falls in the ballpark of 100,000 people, based on the state’s borrowers and the percent of borrowers in default nationally.
According to Betsy Mayotte, president of The Institute of Student Loan Advisors, involuntary collection is not a Trump administration policy, and it doesn’t matter who is in the Oval Office.
“Federal law requires that the secretary of education collect these loans, because these loans are owed to the U.S. taxpayer. So, you know, they’re required to collect on them,” Mayotte said.
Jennie Williamson with Ed Trust Massachusetts, a group focused on racial and economic gaps in education, said borrowers facing collection efforts could face some major financial burdens.
“I think our biggest concern is that taking student loan payments from social security checks, tax refunds, and eventually paychecks is really the last thing that people especially those who are already struggling financially need right now,” Williamson said.
While it’s unclear what the full impact will be, student loan holders could face damage to their credit scores.
Mayotte said borrowers can learn if their loan is in default at studentaid.gov and looking up who is holding their loan.
There is no statute of limitations on the collection of federal loans. And unlike most creditors, the federal government doesn’t have to go to court to get a judgment against a debtor or to garnish wages.
She said there are three ways out of default with federal student loans: pay off the loan, consolidate out of default or go through a program called rehabilitation.
“And rehabilitation is when you make nine consecutive on-time payments in an amount that’s based on your income, and there’s pros and cons to consolidation and there are pros and cons to rehab,” Mayotte said, and she added, “once you do one of those two things and get the loan out of default, there’s a bunch of great things that happen.”
The first thing is that collection costs stop and secondly, the loan becomes in good standing.
On the same day that the federal government said it was resuming involuntary collections on student loans, U.S Secretary of Education Linda McMahon Monda reminded colleges and universities of their obligation to help struggling student borrowers.
“As we begin to help defaulted borrowers back into repayment, we must also fix a broken higher education finance system that has put upward pressure on tuition rates without ensuring that colleges and universities are delivering a high-value degree to students,” said McMahon.
