Steps to Take if Facing Collection Notices on Defaulted Loans
The ADA recently shared an article from CNBC with members. Learn more below and read the full CNBC article here.
Experts indicated that acting quickly may be critical among federal student loan borrowers at risk of a portion of their wages being seized.
Although wage garnishment was paused during the COVID-19 pandemic in 2020, the U.S. Department of Education announced plans to resume seizing the wages, federal tax refunds, Social Security retirement and disability benefits of those who have defaulted on their loans, according to a news article from CNBC. The experts cited in the article indicated that an initial 1,000 borrowers in default may be notified 65 days prior to federal payment seizure and 30 days prior to wage garnishment — which can involve the seizure of up to 15% of disposable income until the loan is taken out of default.
The experts advised borrowers who have received collection notices to pay their defaulted loans or negotiate a repayment plan, typically requiring nine months of consecutive on-time payments. After five months of repayments, wage garnishment will cease. However, loan rehabilitation can only be used once per loan. Additionally, borrowers can object to wage garnishment within 30 days of the collection notice if the existence or amount of their loan is questionable, the seizure of wages would result in extreme financial hardship, involuntary unemployment was followed by less than 12 months of current employment or they qualify for loan discharge under statutory programs.
