The U.S. Department of Education began efforts in May to collect on student loans that are in default.
More than 5 million borrowers nationwide are in default, or overdue on their student loans by 270 days or more, according to the department.
Texas has 3.8 million student borrowers, according to the Education Data Initiative. More than a quarter — 25% to 29% — of Texas student loan borrowers are in default, according to Newsweek. Fort Worth-specific data is not available.
It’s an issue that strikes close to home, when parents and students are preparing for the end of the school year and many are looking into how to finance and pay for a college education.
If your student loans default, your credit score could take a hit and tax refunds and other federal payment could be withheld and applied to the debt, according to The New York Times. The Trump administration began collecting on student loans in default on May 5 following a five-year reprieve introduced in March 2020 during the pandemic.
The Fort Worth Report talked to Michael Kobriger, a local banking executive for Bank of America. Kobriger, who oversees Fort Worth and Dallas area banks, shared tips on how people can find out if they’re affected, how borrowers can get out of default and how anyone can manage their student loan payments. The Department of Education also has guidance on what to do if you’re in default on your student loan.
The Report reached out to the major colleges and universities in the area to find out how many of their current and former students have student loan debt that is in default. None responded by deadline.
The Q&A has been edited for space and clarity.
How can student loan borrowers find out if they’re one of the 5 million people who may be affected by the forced collections?
I think most of the people can reach out to the financial aid offices at their local colleges and universities, and they’ll have that information readily available. Information will also be available if they have already graduated. The college or university works hand-in-hand with whatever the student loan originator was so they’ll have a good track record of the loans.
How can borrowers get out of default?
I think it’s all about having the right plan, with a focus on paying off your student loans while working toward long-term financial goals.
The very first step is to understand exactly how much you owe. Make a list. Put down your debts by creditor, plus outstanding balances, interest rates and monthly payment dates. This list should include your student loans plus any other debts you have, such as credit card balances, car loans, you name it.
A general rule of thumb is either to pay off your high-interest debt or focus on the smallest outstanding balances. It gives you the snowball effect to help you accelerate and get out of debt faster. You don’t want to be in default, because it can have an impact on your credit.
Bank of America has a number of free resources that we can help navigate student loan repayments through a financial literacy program. We help students with this all the time and have never stopped.
What guidance do you have for all student loan borrowers on how to manage their student loan debt?
A good way to help ease the burden of a student loan is to consolidate them into one single, low-interest loan. It’s important, though, to weigh the pros and cons of consolidating or refinancing federal student loans. A new loan with new terms means you may have a longer repayment period. In addition, often when you refinance these loans, you may no longer benefit from certain government protections, like student debt cancellations or payment suspensions.
You can pay more than the minimum required on your monthly payments. It could help you reduce the interest you pay over the life of the loan, and you’ll get out of debt faster. Take advantage of your employer matches, tax deductions and check if your employer offers any type of student loan repayment assistance. An increasing number of companies these days are offering varied programs as a part of their employee benefits.
I highly recommend for any borrower — whether in default or about to be in default — to take on these payments and have a plan to better understand how to do that.
Shomial Ahmad is a higher education reporter for the Fort Worth Report, in partnership with Open Campus. Contact her at shomial.ahmad@fortworthreport.org.
The Report’s higher education coverage is supported in part by major higher education institutions in Tarrant County, including Tarleton State University, Tarrant County College, Texas A&M-Fort Worth, Texas Christian University, Texas Wesleyan University, the University of Texas at Arlington and UNT Health Science Center.
At the Fort Worth Report, news decisions are made independently of our board members and financial supporters. Read more about our editorial independence policy here.
This article first appeared on Fort Worth Report and is republished here under a Creative Commons Attribution-NoDerivatives 4.0 International License.
