The U.S. Department of Education has announced that they will resume involuntary collections, including wage garnishments, on federal student loans starting as early as May 5. This decision comes after a five-year pause in collection activity, with outstanding federal education debt exceeding $1.6 trillion and more than 42 million Americans holding student loans. There could be around 10 million borrowers in default in the coming months.
The government has the power to garnish federal tax refunds, wages, and Social Security benefits to collect on defaulted student loans. Social Security recipients may see up to 15% of their monthly benefit reduced, but they must be left with at least $750 a month. Retirees could face financial difficulties if their Social Security benefits are garnished to repay student loans.
To avoid collection activity, borrowers in default should take steps to get current on their loans, such as enrolling in an income-driven repayment plan or loan rehabilitation. Some borrowers may be eligible for deferments or forbearance to pause their payments. The government will provide notice before starting collection activity, giving borrowers the opportunity to request a hearing or challenge the garnishment if it will cause financial hardship.
Overall, borrowers facing the resumption of collections should contact the Default Resolution Group and explore options to get back on track with their student loan payments. By taking proactive steps, borrowers can potentially avoid wage garnishments and protect their Social Security benefits from being seized to repay student loans.
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