After a three-year pause, the U.S. Department of Education is restarting harsh measures to collect defaulted federal student loans. Actions like seizing tax refunds, garnishing wages, and withholding Social Security benefits will resume, ending a temporary halt put in place during the COVID-19 pandemic. Here’s what borrowers need to know—and how to protect themselves.
Why Are Collections Restarting Now?
During the pandemic, the government paused most aggressive collection tactics to ease financial strain on borrowers. But as federal relief programs wind down, the Education Department is shifting back to pre-pandemic rules. Officials argue this move is part of a “return to normal,” but critics warn it could push already struggling borrowers deeper into hardship.
“Beginning May 5, the department will begin involuntary collection through the Treasury Department’s offset program, which withholds payments from the government — including tax refunds, federal salaries and other benefits — from people with past-due debts to the government,” the department said in a statement. Wages will be garnished following a 30-day warning, it added. — NBC News
How Does This Affect You?
If your federal student loans are in default (meaning you’ve missed payments for at least 270 days), you could face:
- Tax Refund Offsets: The government may take your federal tax refund to repay your debt.
- Wage Garnishment: Up to 15% of your paycheck could be withheld.
- Social Security Garnishment: Monthly benefits may be reduced (applies to older borrowers).
What Can You Do to Avoid Collections?
Don’t panic—there are ways to get out of default and stop these penalties:
- Loan Rehabilitation: Agree to make nine affordable monthly payments (as low as $5) over ten months. Successfully completing this removes the default from your credit report.
- Consolidation: Combine your loans into a new Direct Consolidation Loan. You’ll need to either make three on-time payments or enroll in an income-driven repayment plan.
- Contact Your Servicer: Reach out to discuss options like payment pauses, reduced payments, or alternative plans.
Critics Raise Concerns
Advocates for borrowers argue that restarting these tactics ignores the ongoing struggles many face. “Taking money from Social Security or wages could devastate families still recovering from the pandemic,” said one nonprofit representative. They’re urging the government to expand relief programs instead.
Stay Proactive
If you’re at risk of default—or already there—act now:
- Visit StudentAid.gov to explore repayment plans.
- Call your loan servicer to discuss solutions.
- Consider free help from a nonprofit credit counselor.
The Bottom Line
While the return of collections is stressful, borrowers have tools to fight back. Addressing the issue early can help you avoid penalties and regain control of your finances. Stay informed, explore your options, and don’t wait—the sooner you act, the more you can protect yourself.
Have questions or tips to share? Drop them in the comments below!
Note: This article is for informational purposes only. For personalized advice, consult a financial professional.