A pandemic-era pause is coming to an end, and millions of Americans who have overdue federal student loans need to act now.
After more than five years of breathing room for borrowers, the Department of Education will restart debt collection on defaulted student loans.
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Borrowers are considered in default if they haven't made a loan payment in over nine months. According to the Department of Education, roughly 5.3 million borrowers are in default.
"People have had a holiday," said Howard Dvorkin, chairman of Debt.com. "There's some serious, serious impact to our economy and to consumers."
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The resumption of collections could especially hurt those who are already struggling to stay afloat.
"It's more expensive now than it was four years ago to live. So it's going to be a very big challenge," Dvorkin said. "$80 billion is currently in default — and $80 billion is a lot of money."
Defaulting on a student loan can carry harsh penalties. Dvorkin said the federal government has a lot of ways to collect their money. After a 30-day notice, borrowers could see part of their paychecks withheld or have their tax refunds or Social Security diverted. Those who are delinquent will also see a massive hit on their credit score.
"The reality is you took the student loans out, now it's time to pay them back," said Dvorkin. "And if you took five years off from making payments on it, and now the government's saying, 'Hey, you've got to start making payments,' I think that you got to take the responsibility."
The government recommends visiting its default resolution group to make a monthly payment, enroll in an income-driven repayment plan, or sign up for loan rehabilitation.
Loans are no longer in default after a certain number of on-time payments have been made.
"It'll be fine," said Dvorkin. "Sit down, do the research, reallocate your budget, and you will get out of debt."
Visit the Federal Student Aid site for more information.
