The White House has paused wage garnishments for federal student loans until September 1, 2022. But private lenders can still take money from your paycheck with a court order.
This April, President Biden announced he would extend the payment pause for federal student loan borrowers until this fall. This is a big relief to the 43 million borrowers who currently carry federal student loan debt. These pauses initially began as part of the CARES Act under the Trump administration, when Congress placed all federal student loans in deferment — since then, repayment has been delayed seven times.
So how does this extension help borrowers? Aside from delaying payments, it also prevents interest from accruing and halts wage garnishments for defaulted federal student loans through August 31, 2022. This relief has been a much needed break for many student loan borrowers.
Once the pause ends, the U.S. Department of Education can garnish wages, seize income tax refunds, and offset Social Security payments.
The good news is that you shouldn't have to worry about dealing with those collection efforts. The federal government plans to give its delinquent borrowers a fresh start by returning their accounts to good standing — meaning that borrowers who were previously in default can take advantage of the payment plans available through the Education Department.
Learn More: Operation Fresh Start: Student Loans
Student loan garnishments are on hold for federal loans
The Education Department paused collection activity for defaulted loans until this fall. It also shared some news that would offer relief to many borrowers who were struggling to make payments prior to the pause: The department would erase the default status from borrowers' credit reports and reinstate their eligibility for income-driven repayment plans and loan forgiveness programs like Public Service Loan Forgiveness.
The department administers three federal student loan programs:
- the William D. Ford Federal Direct Loan (Direct Loan) Program
- the Federal Family Education Loan (FFEL) Program
- the Federal Perkins Loan Program
The latest forbearance extension applies only to those loans.
Private loans are a different story. If you have private student loans, your wages can still be garnished, but only if the lender has a court order — you would have to default and the lender would have to sue you to collect on the debt. It’s important to talk to your servicer about your repayment options before you miss any student loan payments. In some cases, you may be able to snooze the payments temporarily with a deferment or forbearance.
If that doesn't work, look to refinance with a new lender. You may qualify for a lower interest rate and a longer payment period depending on your credit score. Read more about how to get rid of private student loan debt.
Learn More: Can Defaulted Student Loans Be Forgiven?
Preparing to repay
Before the pause on interest and payments for federally held student loans ends, the Education Department will pull your loans from the collection agency and place them with a loan servicer. In order to prepare for repayment and learn what your options are once your loans are in good standing, you need to:
- Update your contact information. You'll be notified at least three weeks before your first monthly payment is due, but only if your lender knows how to find you! Check and update your contact information on studentaid.gov.
- Find your student loan servicer. If you’re unsure of who is servicing you’re loans, you’re not alone. Millions of borrowers have had their loans moved to a new servicer over the past year. There’s an easy way to look up this company however, you can check online using studentaid.gov or call the Federal Student Aid Information Center at 1-800-433-3243.
- Review your payment options. Once you're out of default, you'll be eligible for income-driven repayment plans. Your monthly bill under those plans can be as low as $0, depending on your income and family size. Depending on the plan, you may also have your loans forgiven after paying for 20 to 25 years under this option.
Learn More: Where to Find Student Loan Default Help
Options to get out of default
When the pause on federal student loan payments ends, your loans will be automatically returned to good standing by the Education Department so that you’ll have a chance to take advantage of some of the options listed above.
What if you need to recover from default before the freeze ends? If you can’t wait until September and you need to get out of default sooner — maybe to clear CAIVRS to buy a home — settlement and consolidation are your best options. The loan rehabilitation program won't work because it takes too long. You have to make nine monthly payments before the default status is removed.
Learn More: How to Get Your Student Loans Out of Default
The Education Department's pause on federal student loan payments and collections will end this fall. If you have federal student loans in default, the department will automatically return your loans to good standing.
If you need to get out of default before the freeze ends in September, settlement and consolidation are your best options. The loan rehabilitation program won't work because it takes too long.