Federal student loan borrowers have been granted a temporary reprieve this year as the government delays planned collection actions for those in default.
Consumer adviser Clark Howard warned that while penalties are currently on hold, borrowers must establish a repayment plan immediately to avoid future wage garnishment.
The federal government previously intended to withhold tax refunds this spring and begin garnishing wages for individuals with defaulted loans. These aggressive collection efforts have been postponed, providing a short-term window for borrowers to contact the U.S. Department of Education.
Howard explained that the federal government had originally planned to implement strict collection measures against those in default during the first half of the year.
“If you have a student loan that’s gone into default, this was supposed to be a really ugly time for you,” Howard said. “In fact, do you know the feds were going to withhold your tax refund this spring and they were going to start garnishing your wages. But this is now been delayed.”
Despite the delay in these penalties, Howard characterized the current situation as a “temporary stay of execution.” He warned that the window for avoiding these consequences is narrowing for borrowers who have not yet addressed their debt.
“If you have student loans that have gone into default and you’re hiding from them, no, you can’t much longer,” Howard said.
The U.S. Department of Education is the entity responsible for managing these federal student loan accounts. Howard recommended that borrowers take the initiative to contact the department directly rather than waiting for collection efforts to resume.
“What you want to do is you want to approach your lender, U.S. Department of Education and work out a payment plan,” Howard said.
He noted that proactive communication could result in more manageable monthly costs.
“Then the payments hopefully will be reasonable and you’re not going to face this threat of suddenly one day getting your paycheck and it’s much smaller.”
Howard emphasized that the responsibility for resolving the default rests with the individual borrower. “It’s up to you to go to them, not wait for them to come after you,” Howard said.
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