Brace Yourself: Student Loan Collections Are Resuming

As the student loan payment pause comes to an end, borrowers are bracing themselves for the resumption of collections. The Biden administration has taken steps to mitigate the impact on borrowers, but it's essential to understand the risks and challenges ahead. Here's what you need to know to prepare for the changes.



1. Wage Garnishment and Social Security Benefit Offsets:
- *Risk:* Borrowers may see their wages garnished starting in October 2023, and Social Security benefit offsets could resume as early as August 2023.
- *Preparation:* Borrowers should contact their loan servicer immediately to discuss options for resolving their default, such as loan rehabilitation or consolidation. This can help them avoid or minimize these consequences.

2. Limited Access to Income-Driven Repayment Plans:
- *Risk:* Currently, borrowers in default cannot enroll in income-driven repayment plans, which cap monthly payments based on income and family size.
- *Preparation:* The Biden administration has taken steps to allow borrowers in default to enroll in the Income-Based Repayment plan and have a pathway to forgiveness. Borrowers should stay informed about these changes and be ready to take advantage of them when they become available.

3. Reduced Social Security Benefit Protection:
- *Risk:* When collections resume, a higher number of borrowers may have their Social Security benefits offset, as the protected amount is set to increase.
- *Preparation:* Borrowers should be aware of the changes in Social Security benefit protection and work with their loan servicer to minimize the impact on their benefits.

4. Potential Impact on Credit Score:
- *Risk:* Defaulting on student loans can negatively impact a borrower's credit score, making it difficult to obtain credit, rent an apartment, or secure employment.
- *Preparation:* Borrowers should focus on improving their credit score by paying off other debts, maintaining a low credit utilization ratio, and monitoring their credit report regularly.

The Biden administration's recent actions, such as allowing borrowers in default to enroll in the Income-Based Repayment plan and increasing the protected amount of Social Security benefits, aim to mitigate the impact of the resumption of collections on federal student loan borrowers in default. These changes are expected to have the following impacts on the collection process and borrowers' financial situations:

1. Access to Income-Based Repayment (IBR) plan for borrowers in default:
- Currently, federal student loan borrowers need to exit default before they can access income-driven repayment plans like the IBR. The Biden administration's move to allow borrowers in default to enroll in the IBR plan will provide them with a pathway to manage their debt more affordably.
- The IBR plan sets borrowers' monthly bills at a number they can afford, and many end up with a $0 monthly payment. This will help borrowers in default to catch up on their payments and potentially avoid further collection actions.

2. Increased protection of Social Security benefits:
- The Biden administration's decision to increase the protected amount of Social Security benefits from $750 to $1,883 will help more borrowers in default protect a larger portion of their benefits from collection offsets.
- According to the memo, this action will effectively halt Social Security offsets for more than half of affected borrowers and reduce the offset amount for many others.

By being proactive and seeking help from their loan servicer, federal student loan borrowers in default can better prepare for the challenges that lie ahead when collections resume. The Biden administration's recent actions also aim to mitigate the impact on borrowers' financial situations, but it is essential to stay informed and take advantage of the available resources.