The federal government is stopping the pause on collections that started during the COVID-19 pandemic.
Student loans become delinquent if they are more than 90 days late. After no payments for nine months, the loans then go into default.
“This is going to require a huge adjustment for people who have not been in the habit of making their student loan payments,” Channel 2 consumer adviser Clark Howard said.
There are more than 5 million borrowers in default. The federal government has the power to collect directly from borrowers’ paychecks or checking accounts.
“The feds are going to come in and try to grab the money from you, they’re going do wage garnishments, they’re going to use bill collectors,” Howard said.
That will impact credit scores and ability to borrow money for other things like a car loan or mortgage.
“The COVID emergency which led to those things is over and so now it’s brutal. You’ve got to make the payments and there is no way around that,” Howard said.
Borrowers can ask their loan servicer to put them into a loan rehabilitation program to avoid being listed in default.
Borrowers can also make a monthly payment or enroll in an income-driven repayment plan.
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