The free ride is officially over for student loan borrowers. For the first time since before the COVID pandemic, the federal government is resuming full collections and penalties for those in default on student loans. That includes wage garnishment or withholding of tax refunds or other federal benefits. The move comes nearly six years after student loan payments were paused at the onset of the pandemic. Payments and interest on student loans finally resumed last year, after the moratorium was repeatedly extended under the Biden administration.
Total student loan debt in the U.S. has soared while repayments languished, reaching an estimated $1.65 trillion this year.
What this means for borrowers is that it's time to pay closer attention to the status of your loan. "If you are in danger of default, call the lender and work out a repayment plan," says Derrick Kinney, financial and business expert. "The worst possible thing you can do is bury your head in the debt sand...that is going to crush your credit score, and hurt you financially for years to come."
To be clear, one or two late payments won't get your paycheck docked. In order to be considered in default, your loan must be several months behind on payments. But those who have ignored their student loans or left them on auto pilot during the last several years need to be more proactive. "I understand many people are in tough financial situations and they are facing challenges," says Kinney. "But ultimately, you borrowed this money and therefore you have to pay it back, and it's a hard reality that so may people are grappling with."
Photo: Moment RF