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The U.S. Department of Education recently announced that federal student loan collections will resume for defaulted student loan portfolios on Monday, May 5. For just over five years, the Office of Federal Student Aid (FSA) has not collected on defaulted loans.
The U.S. Secretary of Education, Linda McMahon, shared next steps for collections on defaults and details on the initiative overall in a press release from the Education Department. The collections will be paired with a comprehensive communications and outreach campaign to ensure borrowers understand how to get out of default and make their repayments.
“Going forward, the Department of Education, in conjunction with the Department of Treasury, will shepherd the student loan program responsibly and according to the law, which means helping borrowers return to repayment — both for the sake of their own financial health and our nation’s economic outlook,” said McMahon.
FSA will restart the Treasury Offset Program, administered by the U.S. Department of Treasury, on May 5. All borrowers in default will receive email communications from FSA over the next two weeks making them aware of these developments and encouraging them to contact the Default Resolution Group to make a monthly payment, enroll in an income-driven repayment plan or sign up for loan rehabilitation.
In the press release, it was reported that nearly 43 million Americans have student loan debt, totaling more than $1.6 trillion in debt. Of the 43 million in debt, roughly 5 million borrowers are in default and have not made payments in over 360 days. As well, 4 million borrowers are in late-stage delinquency (91-180 days), which, in a few months, could result in nearly 25% of federal student loan borrowers being in default.
For borrowers looking to get out of default on their loans, they can consider rehabilitating their loans or consolidating them. Rehabilitation can take several months to complete and borrowers should contact their loan holder for information. Rehabilitation would result in the default status being removed from the loan and the borrower’s credit history. Consolidation would allow borrowers to pay off their loans with a new consolidated loan with a simple monthly payment.
For borrowers who are in default, this may be a result of previous financial burdens that deterred them from making payments on their loans in order to focus on other burdens. While the new communication initiatives from the Education Department will provide various recommendations for repayment, borrowers may want to consider bankruptcy as an alternative toward the goal of financial freedom.
If the resumption of student loan collection will impact you and you are curious about your options, the attorneys at Sader Law Firm are available to answer all questions and determine if bankruptcy may be the best course of action for you. Contact us at (816) 561-1818 for a free phone consultation and learn more about what actions might be your best decision.
