ORLANDO, Fla. – This is a list you don’t want to be on.
After a five-year hiatus, the federal government is re-instating wage garnishments for student loan borrowers who are behind on paying their loans. Garnishments were suspended during the global pandemic but now, they’re back and a lot of folks are about to receive some unpleasant news.
How many? The feds say about 5 million borrowers are in default and they’ve already sent out about 1,000 notices.
If you do fall into this group, don’t worry, you have options.
I spoke with CBS News Business Analyst Jill Schlesinger – she says help is available, but above all else, don’t ignore the notices and do take action. Here’s a transcript of our conversation:
WKMG-TV:
The Department of Education is sending out notices that could impact millions of people who have defaulted on their federal student loans. CBS news business analyst Jill Schlesinger is here to explain what to do if you receive a notification.
Jill, this is some serious stuff - when is a student loan borrower in default?
JILL SCHLESINGER:
Well, there’s actually a progression. When you miss a payment, even just one, you’re considered delinquent. Once a payment is 90 days late, now the government is going to do another thing that’s going to hurt you. They’re going to report you to the credit bureaus. And that’s going to ding your credit score. It makes it harder and more expensive to get approved for a credit card or a car loan, or a mortgage. You are considered in default after 270 days of non-payment.
WKMG-TV:
What is the government doing to recoup those loans?
JILL SCHLESINGER:
Well, the Department of Education is notifying these federal student loan borrowers who are in default that their wages could be garnished. This is pretty serious, because it means that the government can take up to 15% of your paycheck directly, and they don’t have to go to court to do this. But if you’re technically in default, they can go after your wages. They also can look at federal benefits like Social Security or income tax refunds. They may tap a portion of those for repayment.
WKMG-TV:
And again Jill, we’re talking about millions of people. If you are in default, what should you do?
JILL SCHLESINGER:
First of all, contact your loan servicer immediately. I think they’re you’re going to find you have three specific options.
One is called loan rehabilitation. That’s where you make nine affordable payments over ten months. The second is called loan consolidation where you would get a new direct student loan. And the third is called an income based repayment plan. Now that’s a very enticing offer because it’s going to push down your monthly loan payment. But don’t forget it makes the term of your loan longer. You’re adding years on the back end. The key - please don’t ignore these notifications. Act quickly before garnishment begins.
WKMG-TV:
As usual Jill, great advice. You can see Jill Schlesinger regularly on CBS Mornings and the CBS Evening News. For more analysis, go to Jill-on-Money.com.
[WATCH BELOW: Fast cash, familiar trap]