Federal Student Loan Repayment Guide

Do one thing: If you are unsure of your student loan repayment status, visit studentaid.gov and check your account. While you are there, make sure your physical and email addresses are current. 

Reinstatement of Collections Announced for Federal Student Loans in Default

You’ve probably heard by now that the federal student loan repayment pause – the one that started back in 2020 when the COVID pandemic shut down much of the world – has ended.

What is the Pause? The student loan pause meant millions of borrowers who didn’t make loan payments during the pause were not penalized, including many who were already in default on a federal student loan in 2020.   

Recent Announcements. The U.S. Department of Education recently announced it will reinstate collections on defaulted federal student loans this summer. (Private loans were never paused, and so this information doesn’t apply to them.) That means it’s time to take a look at which borrowers could likely face the following:

• Credit score hits
• Wage garnishments
• Tax refund diversion
• Other penalties

Answers to Student Loan Questions

Jillian Berman, a student loans expert and author of the new book: “Sunk Cost: Who’s to Blame for the Nation’s Broken Student Loan System and How to Fix It” answers our questions about who is most at risk for penalties and offers strategies on how to get your student loan payments back on track if you are in default. 

Who will face the consequences first?  

There are about 5 million borrowers who were likely in default before the pandemic, Berman explains, and will now face the consequences, including having wages garnished.  (Yes, the government is allowed to do that when it comes to federal student loans.)

What does default on my loan mean?

Being in default means you have not made a payment that you owed for more than nine months. If you default on a federal student loan, it’s important to note that you also lose eligibility to receive any other federal student aid and may experience legal consequences.

What are my next steps if I’m in default?

If you find yourself in default, Berman says the next best step for most people is to do the following:

• Contact the Default Resolution Group at the Department of Education, which can help you get into different programs to remove you from default.
• You can call them at 1-800-621-3115 or use 1-877-825-9923 TTY for the deaf and hearing impaired.

How can I get out of default? 

There are two ways out of default:

1. Rehabilitation – working with your loan servicer on a plan to repay the money you owe.
2. Consolidation – rolling your debt into a new loan that will repay the old one and put you on a new payment schedule.

While you may experience a long call wait time, you should set aside some time and get on the phone with your loan servicer as soon as possible to do what you can to get out of default.

• How to Rehabilitate Your Loans. Visit studentaid.gov for more information about how to get out of default.

Will I be sent to collections?

You may be sent to collections if you meet both of the following criteria:

• Did not make federal student loan payments for 9 months or longer before March 2020
• And your loan was considered in default

It’s likely you may now be sent to collections by your loan servicer, which will also show up on your credit report.

Will my wages be garnished?

If you are in default and subject to wage garnishment:

• You should be contacted by mail (at your last known address) about 65 days before the garnishment is set to begin.
• You may be able to avoid the garnishment by entering a repayment plan during the 65 days.
• You may also be able to stop the garnishment by entering into a rehabilitation agreement and making the first five of the nine required payments.

What does delinquency on my loan mean? 

Delinquency is not as serious as default, but it’s still a problem. It means you have fallen behind by about three months, says Berman, but you still haven’t reached the nine-month mark that would move you into default. Those who are delinquent will likely begin to see credit score consequences, meaning scores could take a negative hit.

How does it affect my credit score?

For a delinquent account, your credit report will likely show late payments that were reported by your loan servicer before a loan goes into default. The late payments and subsequent default of a loan can stay on your credit history for up to seven years.

How do I get help with a student loan delinquency?

If you know you’re behind with a student loan repayment, but you’re not yet in default, Berman says:

• Call your student loan servicer
• Try to get into an affordable repayment plan

For most people, that will be something called income-driven repayment (where your monthly payments are based on your income), but other options can help, too.

What does forbearance on my loan mean?

Forbearance is a temporary pause in payments that a loan servicer can place you in. Remember, if you are in forbearance, you are not in default. Right now, there are a lot of borrowers in forbearance because of litigation surrounding student loan repayment plans, says Berman.

Who qualifies for student loan forbearance?

You may be able to get student loan forbearance. To learn more about eligibility requirements and the types of forbearance available, visit the student loan forbearance information page at studentaid.gov.

(For more on the current student loan situation, stay tuned for Part 2 of this series.)

With reporting by Casandra Andrews