The U.S. Department of Education last week announced it would begin collections on federal student loans in default. That means anyone behind on payments by 270 days or more will soon face automatic deductions from their wages, tax refunds and other income sources.
Collections on overdue loans had paused for years during the pandemic. Betsy Mayotte founded the Institute of Student Loan Advisors. She says collecting on loans in default is mandated by federal law.
“The fact that it was ever paused in the first place — if you had asked me 10 years ago if that would ever happen, I would’ve said, ‘No way,’” Mayotte told MTPR in a phone interview. “So, this was coming no matter what.”
The Department of Education says as many as 25% of all student loan borrowers could be in default within the next few months.
Mayotte says all borrowers should log on to studentaid.gov to check the status of their loan. Those in default can contact their loan servicer and access help getting their loan back in good standing.
Mayotte says the student loan landscape can feel murky. Millions of borrowers on the Biden-era SAVE repayment plan are still in forbearance, unable to make payments as the plan is litigated in court. Plus, Congress may soon propose a slimmed-down package of repayment options.
Data from the Federal Reserve Bank of New York show that Montana had the lowest rate of borrowers with overdue student loan balances in the nation at the end of last year.
