The U.S. government is sending notices to borrowers who may have defaulted on student loans. CBS News' Jill Schlesinger breaks down how your wages and tax returns could be at stake.

Washington

The U.S. Department of Education has begun notifying approximately 5 million borrowers who are in default on their federal student loans that collection actions will resume. Borrowers who have not made payments for 270 days are considered in default and may face wage garnishment, seizure of tax refunds, and even deductions from Social Security payments.

Officials advise those in default to contact their loan servicers to explore options such as repayment plans, refinancing, or income-driven repayment programs. Short-term relief options like forbearance or deferment are available for those experiencing temporary hardship, but not for those who have been in default for extended periods.

Govt may seize wages, tax refunds for defaulted student loans

I'm not for the opening bell on Wall Street. That is Dave Ives from Wedbush Securities getting the honor today. The company is celebrating a new A.I. ETF. Very cool. Here's a live look at the markets right now at the open. Stocks are poised to retreat for a second day. Futures for the Dow and the S&P 500 ticked lower earlier this morning. Growth gauges dropped Wednesday, breaking a start-of-the-year rally. So let's bring in CBS News Business Analyst Jill Schlesinger to talk more about Money Watch News. Good to see you. Nice to be with you, sir. Happy New Year. Happy New Year, my friend. All right. So let's talk about the Department of Education. It's sending out notices this week, which is incredibly important and can impact millions of people and student loans. Talk to me about that. Well, you know, when we talk about student loans, there have been so many changes that made the whole COVID pandemic. Remember, we had people who weren't paying for years and things restarted. So the student loan program has really shifted. One of the big shifts is the government is going to resume recouping its loan amounts from people who are in default. Just a quick definitional moment. If you miss one payment on your student loan, your federal student loan, you are delinquent. OK, you miss paying for 90 days. They're going to report you to the credit reporting agencies. That's going to ding your credit score. Not so great for you long term if you have to borrow money, you'll pay higher interest rates. If you stop paying for 270 days, you are now technically in default. And what the letter that is going out to about 5 million borrowers, so not an insignificant amount is, hey, you're in default. We're coming after you to get that money. And so how will they do that? So they will garnish wages. So that's a big deal. I know people might have heard that term. Sometimes you hear that with divorces, you know, your people's wages are garnished and they have to pay alimony or child support. This is the government saying we can take up to 15 percent of your pay. 5-0. No, 1-5. Oh, 1-5. 15 percent. And we can take that to repay your loan. The other thing they can do is for some of the older borrowers, they can garnish your Social Security payments part of. And importantly, we are about to have a massive tax refund season. People are going to have big refunds they're hoping to get. The government could actually take a portion of your tax refund if you owe them money and you are in default on your federal student loan. So we've talked in the past about what people should do if they get behind on their credit card payments. You can always talk to the companies and come up with a plan to pay them back. Does the government offer something similar? They really want to help you get back on track. So you've got to actually contact your loan servicer. A lot of people don't know that these things change a lot, but you can actually go onto a website. You will probably in that letter have a note that says, go to your loan servicer and see where you stand. You can get back on track by making payments right now of, say, 9 of 10 payments. That'll kind of get you back in the queue. You can also refinance that loan, maybe go to an income-driven repayment plan. Now, these plans have shifted a lot in the last few years, but they do still exist. I think it's important to note that for these folks who are in technical default, you know, there is a way that you can claim like, hey, something bad happened to me, but it's hard to claim that for 270 days, right? So I think that what we have to be clear about is that sometimes a short-term bad thing happens and you say to the loan servicer, hey, can I get a little help here? Can I get some forbearance? Can I go into deferment? Can you just like, put the ice on my loan, let it sit there. I know it'll have interest accruing, but just do that. They will do that. But you can't claim that if you have not been paying for 270 days. Some good advice there from Jill Schlesinger. And we're going to be doing this on a weekly basis. Yes. I'm so excited. I'm very excited to be with you. Good to see you, my friend.

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