The Education Department announced that starting next month, student loans in default will be referred for collections, affecting roughly 5.3 million borrowers. The pandemic-related pause on referrals for collection has ended, and borrowers could face wage garnishment as a consequence. Borrowers will receive notices on collection efforts and can explore options to get out of default, such as making monthly payments or enrolling in income-driven repayment plans. For those in default, loan rehabilitation is recommended as a way to get back on track. Delinquency occurs when a payment is 90 days past due, while default happens after 270 days of non-payment, leading to more serious consequences like wage garnishment.
The Department also highlighted the availability of student loan forbearance as a temporary pause on payments for borrowers facing financial difficulties, with interest accruing during this period. The Associated Press is committed to improving financial literacy through educational reporting, with support from the Charles Schwab Foundation.
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