The Education Department said it will resume collections on defaulted student loans beginning May 5. Andrew Pentis, consumer lending analyst and certified student loan counselor at Bankrate, joins CBS to discuss.

Washington

The Education Department announced that it will resume the collection of defaulted student loans. The department plans to execute this through the Treasury's Offset Program, which collects debts via garnishing tax refunds, federal salaries, and Social Security benefits. This move will affect more than five million borrowers who are already in default and potentially another four million who might default soon. Currently, less than 40% of borrowers are caught up on their payments.

Since March 2020, no federal student loans have been sent to collections, a pause initiated during President Trump's first administration and tied to the CARES Act. This act, along with several extensions across multiple presidential administrations, has provided a respite to borrowers. However, the Education Department now signals a shift, urging borrowers to resume payments to avoid repercussions like negative impacts on credit.

Under the Biden administration, a temporary measure was in place to prevent late payments from affecting credit scores; however, with the resumption of collections, borrowers must now prioritize their repayments. Options to address defaults include loan rehabilitation through regular payments or loan consolidation, which could lead to more affordable income-driven repayment plans.

Challenges in reaching federal student loan servicers are notable, with borrowers facing long wait times due to a downsized Department of Education. Past administrations have not successfully improved this service. Borrowers are encouraged to remain persistent in their efforts to communicate with servicers and to make use of available resources at studentaid.gov.



Trump administration to resume collections on defaulted student loans

The Education Department says it will resume collections on defaulted student loans beginning May 5th. And in order to accomplish this, the department says it will go through the Treasury's Offset Program. It collects people's debts by garnishing things like their tax refunds, federal salaries, Social Security benefits. The Education Department says more than five million borrowers are in default on their federal student loans. Four million more could default in the next few months. Less than 40% of borrowers are up to date on their payments. Andrew Pendis joins us now. He's a consumer lending analyst and certified student loan counselor at Bankrate. So thank you for being here. No federal student loan has been referred to collections since President Trump paused that during his first administration. That was March of 2020. Walk us through how we got to this point. Yes, it really all dates back to the CARES Act that Congress passed in March 2020. So this is really a five-year time span across three presidential administrations, now continuing with the second Trump administration, where borrowers have not had to make payments on those loans. It's been renewed again and again. But now this newly formed, newly shrunken Education Department is basically telling borrowers, you know, now is time to foot the bill and start facing these consequences, particularly when we're talking about impact to credit. And then, as you mentioned there, the impact of being in default and facing potential debt collection and the consequences associated with that. So prior to this, were defaults not reported to credit bureaus? And that's now changing. And what is the impact of that? And what should people do who have defaulted? Yes, so the Biden administration gave basically a one-year on-ramp for many federal student loan borrowers, where he said that those late payments wouldn't count towards credit reporting. And what that means is that if you were late on your federal student loan, you wouldn't see your credit score dip. Now we're seeing that happen, in addition to those debt collection tactics, which will begin in early May. So if you are in that category of federal student loan borrower, maybe you're delinquent, or maybe you're already in default, you have a couple options to get current with your loans. You can start to rehabilitate them by making payments to your federal student loan servicer, or you could consider consolidating them with your federal student loan servicer. And to get that lower, more affordable monthly payment, apply for an income-driven repayment plan. What anecdotes are you hearing, though, about challenges that some borrowers are having in trying to make payments, trying to contact someone at the department? Yeah, this is all much easier said than done. Many borrowers have told us that they're experiencing incredibly long wait times, sometimes three, four hours of trying to get their federal student loan servicer on the phone. And much of that could be chalked up to a diminished Department of Education. But even before this Trump administration took office, the Department of Education had a very spotty record, and its contracted federal student loan servicers had a very spotty track record of helping out these federal student loan borrowers. So certainly if you're a borrower out there, the best advice is don't despair, keep trying to be proactive, stay on the phone, contact your servicer as you can, and utilize those free resources at studentaid.gov. Andrew Pentes, thank you for your time. Thank you.

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