[Craig Nigrelli]
More than 5 million people are currently in default when it comes to their student loans, according to CNBC… and on Monday, the federal government will resume collection efforts.
Currently, more than 42 million Americans have student loan payments. That debt amounts to about $1.6 trillion. Of those 42 million, 5 million are in default. As a result, the federal government can try to re-coup that money by going after debtors’ paychecks, income tax refunds, Social Security benefits or disability.
Collection efforts have been on hold for several years, as the Biden administration tried to give relief to those struggling to make payments. Millions of borrowers were on the Biden administration’s SAVE repayment plan. However, a federal appeals court blocked the SAVE plan in February. Plaintiffs argued the Biden administration was trying to find a way to forgive student loan debt, on the heels of the U.S. Supreme Court striking down debt cancellation in 2023.
SAVE reportedly stipulated lower monthly payments and quicker debt elimination for some borrowers with small balances. The appeals court ruling sent borrowers into interest-free forbearance. That policy is now ending.
Many of those borrowers are now forced to switch into another repayment plan.
The Trump administration has gotten rid of forgiveness for some student loan repayments plans and eliminated staff at the Department of Education. CNBC reports many of the laid off employees assisted borrowers and this has led to long wait times on the phone for those seeking advice and help.
The new administration has been critical of Biden’s efforts to give financial relief to those who had access to a college degree. Secretary of Education Linda McMahon said, “Americans will no longer be forced to serve as collateral for irresponsible student loan policies. “
Mike Pierce, the Executive Director of the Student Borrower Protection Center countered that restarting collections “will further fan the flames of economic chaos for working families across this country.”
Credit scores are another concern. The Federal Reserve warned, in March, that more than 9 million borrowers, who are late on their payments, could see their score drop by more than 170 points. Such credit scores affect a person’s ability to borrow money, with a score of 670 or higher considered to be good.
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