CHICAGO (WLS) — For five years, Americans with federal student loans didn’t have to worry about possible debt collection.
They were given a break, because many people faced financial hardships during the COVID-19 pandemic.
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But now, things have changed.
The Trump administration is resuming collection of loans that are in default.
According to the U.S. Department of Education, about 5 million borrowers have defaulted on their student loans.
And millions more are at least 90 days late on their payments.
Donna Rasmussen, executive director of the Consumer Credit Counseling Service of Northern Illinois, points out that during certain periods, people tend to prioritize different essential expenses. She notes that expenses such as rent and car insurance have significantly risen, leading individuals to make tough decisions about which bills to pay. Rasmussen mentions that many individuals express a preference for going into debt rather than facing homelessness. As a result, they choose to pay for necessities like food and car payments over other financial obligations, such as student loan payments.
Consumer Credit Counseling Service of Northern Illinois Executive Director Donna Rasmussen joined ABC7 to discuss.
Rasmussen says the average federal student loan debt amount, in both private and federal loans, is about $38,500.
For those with outstanding student loan debt, how do they know if they’re in default?
Regarding the consequences of not making payments on time, Rasmussen explains that after 90 days of non-payment, individuals typically enter a state of default. At this point, they receive notifications, either by mail or email, outlining the available options for addressing the overdue payments.
One way the federal government might seek to recover the money owed is through wage garnishment.
When discussing various forms of debt, Rasmussen highlights that court orders are commonly involved in the process. However, when it comes to student loan debt, court appearances are not mandatory. Instead, individuals in default will receive notices indicating that their wages may be garnished as a means of debt collection.
In addition to wages, they can also garnish Social Security payments and tax refunds.
Click here for more information about Consumer Credit Counseling Service of Northern Illinois.
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