Susan Tompor, Detroit Free Press
8 min read
Beginning in June, tens of thousands of student loan borrowers who didn't make payments for quite some time are expected to start seeing less money in their monthly federal benefits checks, like Social Security, as serious debt collection tactics start to unfold.
A 30-day notice already went out in early May to 195,000 student loan borrowers who are in default, notifying them of what's ahead for their Social Security retirement and disability payments if they don't take action, according to the U.S. Department of Education.
Under the rules, 15% of Social Security benefits each month could be used to offset federal student loans that are in default. On the plus side, up to $750 of monthly Social Security benefits are protected from the offset.
For most federal student loans, you are considered in default if you have not made a payment in more than 270 days or roughly nine months. And the numbers in default are expected to grow this year and early next now that the pandemic-related student loan relief is completely over.
We're going to be hearing more about the federal government's renewed response now to collecting unpaid federal student loan debt that's in default. Money from one's tax refund and wages could be taken to cover months of unpaid student loan debt, too.
Later this summer, about 5.3 million borrowers who were in default before the pandemic began in 2020 are expected to receive a notice from U.S. Treasury that their earnings will be subject to administrative wage garnishment.
The Education Department can require employers to send it up to 15% of a borrower's disposable pay to repay the defaulted loans. Disposable income is calculated after taxes and other legal obligations.
Not surprisingly, consumers who face this kind of financial calamity should be on high alert for someone else to reach out with an unsolicited text, email or phone call, too. You can expect to hear from a scammer anytime soon.
"Every time there is a major event in the student loan system there are the same kind of fly-by-night, boiler-room scams that robo dial borrowers," said Mike Pierce, executive director of the Student Borrower Protection Center, an advocacy group based in Washington, D.C.
Some scams, Pierce said, are just a shakedown for cash from people who are having trouble paying their bills. The crooks use information from lead generators to pinpoint vulnerable borrowers who already are seeing their credit decline because they aren't paying their student loan bills.
These scammers want to charge you very high upfront fees by offering claims that they can get borrowers a lower monthly payment or get them access to debt cancellation.
