After a five-year pause, federal student loan collections have resumed, bringing renewed attention to the challenges many borrowers face. If you’re behind on your student loan payments, it’s crucial to understand the implications and, more importantly, the pathways available to help you regain financial stability.
What Happens When You Default?
When a student loan goes into default—typically after 360 days of missed payments—the consequences can be significant. The most common action lenders can take is wage garnishment, allowing them to seize up to 15% of your disposable income without a court order, provided they give 60 days’ notice. Beyond wage garnishment, the federal government also has the authority to intercept your tax refunds and even a portion of your Social Security benefits.
These measures can significantly impact your financial well-being, making it harder to cover essential living expenses and achieve your financial goals. Defaulting also damages your credit score, making it difficult to secure new loans, rent an apartment, or even get certain jobs. The interest on your loan may also capitalize, meaning unpaid interest is added to your principal balance, causing your debt to grow even faster.
Your Path to Relief: Getting Out of Default
The good news is that defaulting on your student loans doesn’t have to be a permanent state. There are established methods to help you get out of default and protect your income:
- Loan Rehabilitation: This is a powerful option that can remove the default from your credit report. It typically involves making nine affordable, on-time monthly payments over 10 consecutive months. The payment amount is often based on your income and expenses, making it manageable and setting you up for long-term success.
- Loan Consolidation: By consolidating your defaulted federal student loans into a new Direct Consolidation Loan, you can bring them out of default. To qualify, you usually need to make three voluntary, on-time, full monthly payments on the defaulted loan before consolidating, or agree to repay the new consolidation loan under an income-driven repayment plan. Consolidation can also simplify your payments by combining multiple loans into one, potentially lowering your monthly payment.
Preventing Default: Proactive Steps
Even if you haven’t defaulted yet, or once you’re out of default, it’s wise to explore options to prevent future struggles. Consider enrolling in an Income-Driven Repayment (IDR) plan. These plans adjust your monthly payment based on your income and family1 size, potentially reducing it to as low as $0 per month. This can provide a crucial safety net, ensuring your payments are affordable and you remain in good standing.
Contesting a Default or Garnishment
In certain situations, you may be able to contest your default status or a proposed wage garnishment. This is possible if:
- The debt is not yours.
- The amount of the debt is incorrect.
- Wage garnishment would cause you severe financial hardship, preventing you from meeting basic living expenses for yourself or your family.
Take Action Today
Facing student loan default can feel overwhelming, but you have options. Understanding these pathways is the first step toward regaining control of your financial future. Don’t wait until it’s too late; explore which option best suits your situation and take proactive steps to address your student loan debt.