CLEVELAND — Federal student loan borrowers in default will soon face serious financial consequences as the U.S. Department of Education prepares to resume collections starting May 5, ending a three-year pandemic-era pause.
For more than 5 million Americans currently in default, this means potential wage garnishments, tax refund seizures, and other involuntary collection actions.
“If you are in default with your loans, the federal government will start involuntary collections through the Treasury Department,” said Phil Wallace with College Now Greater Cleveland.
College Now Greater Cleveland is a non-profit that helps with all aspects of college, but also has student loan experts who can review your loans and offer guidance on next steps.
“Sixty-two percent of borrowers are not currently in good standing on their payments,” he said.
That means while they may not be in default yet, they could be headed that way. Millions are behind on their loan payments.
“They’re going to start giving some notice over the next two weeks,” Wallace said.
But for many, the looming threat that hits hardest is wage garnishment.
“The one that sort of got everyone on edge is the wage garnishment,” Wallace said. “Again, not set to happen right away. You’ll have a 30-day notification before that would begin.”
The Education Department said in a media release Monday that it would take 15% of a borrower’s disposable income. These notices could begin appearing “later this summer.”
Among those still feeling the weight of student loan debt is Francesca Barrett, a Kent State University graduate who owed more than $50,000 in loans after graduating.
She is not in default and continued making payments even when the Trump administration paused collections back in March 2020. The original pause was set to last 60 days.
The Biden administration extended the pause for the duration of its term. Though the extension ended in October 2023, collections remained on hold.
Barrett said her student loan payments consume nearly her entire first paycheck of the month.
“My first paycheck of the month covers rent, student loan, groceries for two weeks, and I get about $30 left over,” she said.
“I look at that number that’s in my bank account two to three times a week.”
Barrett never stopped paying, but many others did.
“If you know that you haven’t made payments in a while, the time to take action is now,” Wallace said.
One possible option for borrowers in default is loan rehabilitation.
“You would make nine months of consecutive affordable, reasonable payments, then your loans would be taken out of default,” Wallace explained.
But that path is only available to those who haven’t previously used it. Other borrowers may consider loan consolidation, though each option has specific eligibility requirements and long-term implications.
Failing to act can have long-lasting consequences beyond immediate collections, including damage to borrowers' credit scores.
Wallace said what makes matters more confusing is that many are unsure whether their repayment plans, known as SAVE, will still be eligible. This Biden administration program allows people to make payments based on their income.
He said the reality is, some people will not be able to do anything.
“Now some people are not going to have options,” he added. “And that’s the unfortunate part of this. And I think that we need to be real about that.”
Wallace recommended that borrowers log into their federal loan accounts, keep good records and documentation, and seek free assistance from organizations like College Now Greater Cleveland.
For those in Northeast Ohio, it may be worth using local resources, especially as the Trump administration has made significant changes to the Department of Education.
Wallace said that, for now, the main impact from these changes may be longer wait times, but other consequences are still unknown.
