SAN DIEGO (KGTV) — Starting this month, individuals who are delinquent on their federal student loans will encounter more stringent repercussions, including potential wage garnishment and interruptions to federal benefits.
This move comes after a five-year pause in enforcement, as the federal government returns to efforts aimed at recouping unpaid student loan debts.
Bill Dutton, a financial advisor and owner of College Funding Solutions San Diego, noted that the current administration is intensifying efforts to address the growing federal deficit.
“This is not something new, but the current administration, of course, is looking for every dime they can to reduce the deficit, and they're cranking it up,” Dutton explained.
Dutton elaborated on how delinquent cases are categorized.
“If you're late one day on your loan, you are now behind. Well, if you get 90 days now you still have the opportunity to go to the Fresh Start program, or the pay as you earn program, and all those other credit repair kind of programs. But if you go past 270 days, you are now delinquent, and as far as garnishment, they will contact your employer and they will start to take up to 15% of your take home pay,” he stated.
A new study from TransUnion, a credit reporting firm, reveals an increase in borrowers who are at risk of facing these consequences. According to the data, 31 percent of borrowers had payments more than 90 days past due as of April, which is an increase from 20.5 percent in February. Furthermore, it is estimated that out of 5.8 million newly delinquent borrowers, 1.8 million could default as soon as July.
Dutton advised that those with delinquent accounts should take immediate action.
“Well, the first thing they ought to do is contact their loan servicing program, also explore income-driven repayment plans, as I mentioned, and monitor their credit report,” he recommended.
He warned of the long-term implications of maintaining a bad credit score due to student loans.
“It could be devastating, you know, if you have a bad credit score from a student loan, it's kind of like saying to anybody if you wanted to take out a home loan or a car loan or something like that, you might be able to get a loan, but of course your interest rates are even going to be higher and higher, uh, because you're not a good credit risk,” Dutton said.
As borrowers look to rectify their situations, Dutton emphasized the need for a proactive approach.
“You know, you really need to figure out a way to earn as much more money than you currently are and also figure out a way to uh freeze your spending and reduce your expenses,” he advised.
As the federal government ramps up efforts to tackle unpaid student loans, residents are encouraged to assess their financial conditions and seek assistance as necessary.
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