Urgent Alert for Student Loan Borrowers in Default: Major Changes Effective May 5, 2025Investopedia+3Business Insider+3Politico+3
The U.S. Department of Education has announced that, beginning May 5, 2025, it will resume collections on defaulted federal student loans, affecting over 5 million borrowers. This action concludes the pause on collections that began in March 2020 due to the COVID-19 pandemic. Affected borrowers may face severe financial consequences, including wage garnishments, tax refund interceptions, and reductions in Social Security benefits. AP News+3Business Insider+3Investopedia+3Politico
Key Implications for Borrowers:
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Wage Garnishment: The Department of Education plans to implement administrative wage garnishment, allowing up to 15% of a borrower’s income to be withheld. Politico+3Investopedia+3AP News+3
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Treasury Offset Program: Borrowers who remain in default risk losing tax refunds and Social Security benefits through the Treasury Offset Program. Business Insider+1Politico+1
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Credit Score Impact: Failure to resume payments may adversely affect credit scores, making it more challenging to obtain future credit. Investopedia
Available Relief Options:
Borrowers are encouraged to explore available relief options to avoid these penalties:
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Income-Driven Repayment (IDR) Plans: These plans adjust monthly payments based on income and family size, potentially lowering payments to an affordable level.
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Loan Rehabilitation: This process involves making a series of agreed-upon payments to bring the loan out of default status.
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Default Resolution Group Assistance: Borrowers can contact the Default Resolution Group for guidance on repayment options and to discuss eligibility for rehabilitation or IDR plans.Business Insider+1Investopedia+1
Action Steps for Borrowers:
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Contact the Default Resolution Group: Reach out to discuss available repayment options and to initiate the rehabilitation process if eligible.Wikipedia+4Wikipedia+4Business Insider+4
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Review Income-Driven Repayment Plans: Assess eligibility for IDR plans that can make payments more manageable.Wikipedia+1Wikipedia+1
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Monitor Communications: Stay informed by reviewing all communications from the Department of Education and the Treasury Department regarding your loan status.
