The U.S. Department of Education is Collecting Student Loans Again

The state of college student loans seems to change consistently over the years, and recently, it got its next big update. The U.S. Department of Education announced on April 21 that its Office of Federal Student Aid (FSA) will resume collections of its defaulted federal student loan portfolio on Monday, May 5th. We will explain why this is a big deal and also walk you through how you can navigate this new update.

How Does This News Affect You?

The Department has not collected on defaulted loans since March 2020. This change will affect 5.3 million borrowers who will have to repay what is being collected. The previous Biden administration was in the process of forgiving millions of federal student loan debt, and extended the pause on loan collections to do so. Now, students will have to go back to paying them due to this change. 

According to Jeff Boron of Send Your Kids to College, people will receive an email communication telling them that it’s resuming and will be given a number to call to help with default resolution on student loans. He also says that the next big step that will negatively affect these people is the garnishment of wages. That is a legal procedure in which a person's earnings are required by court order to be withheld by an employer for the payment of a debt. A process that could be very damaging to those who say for example, are living paycheck to paycheck. Around 30-60% of people living in the US reportedly suffer from that. 

Jeff says that if your loan is in default, something you can do in the meantime is a resolution process that student loan borrowers initiate, where if you’re making 9 payments on time, they will give you some grace on the question activity. If you’re in default, get in touch with the Department of Education and come up with a resolution process so that they don’t garnish your wages. 

Listen to the full interview here - A New Morning Buffalo Podcast Interview

What it Now Means to Avoid the Student Loan Crisis

Jeff says as much in the interview that money has now started to rise as a top priority for people just getting into college. It will factor into the type of college you choose to go to and how you may cut back on your expenses. Avoiding this type of crisis is one of our top priorities when keeping you up to date with information. 

Now with this new change, student debt is about to go from being the fastest growing type of debt to the definitive fastest growing debt, where no other kind even competes with it. 

One of the best ways you can fight this is through an appeal letter. First, we’d recommend calling your school’s financial aid office and have a conversation about other options, and then you can write the letter if you choose. Although it may take a while to get through to them, as we would imagine that hundreds of calls will be made, and you’ll have to wait. 

As we say in our Student Loan Crisis article, “The majority of student loan holders don’t estimate their monthly payment before signing on the dotted line for a loan.” That’s why we can stress enough that you must plan your budget and expenses for the new year coming up. It’ll be worth it in the long run, and for any parents reading this, you must also have the College Money Talk with your kids. We make sure to have as much information on hand for you there, and we can’t recommend it enough.

Looking For Scholarships That Can Help Your Finances

The earlier you start planning for your kids college financial plan, the better. Planning ahead can help prevent problems down the road, whether after graduation or after debt is due. We understand the frustrating process of planning for college when it comes to financials, and that’s why we have a page specific for FAFSA/TAP Help. Trained professionals give you help on something as important as looking at financial forms, and how sometimes parents make mistakes when signing them or not signing them. 

One of the other final things we want to remind you about with your kids is that scholarships can help pay for your student loans and other expenses. At Send Your Kids to College, we specialize in making sure that you receive any potential local or national scholarships. Any possible avenue you can take to help pay off the loans will be good for you. We have information on all kinds of different scholarships that benefit what you’re going to school for. 

More Info - WNY Scholarships

More Info - National Scholarships