Uncle Sam began collecting defaulted student debt yesterday for the first time since imposing a Covid-era pause in March 2020. Borrowers who have missed payments for more than 270 days will start getting their debt deducted from tax refunds, wages, and government benefits, the Trump administration said.
Among the 42 million Americans with federal student loans, a record share have missed payments, per TransUnion:
- Over 5 million borrowers are in default, meaning they are at least 270 days behind on payments, and 4 million more are in late-stage delinquency (90+ days behind).
- Only a third of Americans with federal loans have been making regular payments during the pause, according to the Department of Education.
Ending up in collections for student loan default is a credit score smasher, with defaulters’ ratings at risk of sinking as much as 171 points, according to the New York Fed, making it more difficult for them to take out future loans and rent housing.
How can you find out if you’ve defaulted?
Borrowers can check their federal student loan status at StudentAid.gov. Defaulted debtors will get an email from the Federal Student Aid office in the next few weeks referring them to the Education Department’s Default Resolution Group.
There are options for anyone with loan trouble, including income-driven repayment programs, consolidating loans to prolong repayment, or getting a loan payment pause through forbearance or deferment.—SK