Student loan borrowers face wage garnishment and refund cuts

CHICOPEE, Mass. (WWLP) - As the Department of Education resumes collections on defaulted federal student loans, millions of borrowers' wages or tax refunds could be at stake if not paid off quickly.

They have a limited time period before this happens, but 22News learned that there are options to help begin paying off those loans.

Millions of federal student loan borrowers who are in default could have money taken from their paychecks now that the COVID-era payment pause has officially ended. Financial experts say the first step is knowing your status.

Matthew Farkas with St. Germain Investments told 22News, "You really need to check your loan status and reach out to the Department of Education to see if you are in fact in this situation." According to the Department of Education, this doesn't apply to borrowers in forbearance.

Nearly 200,000 defaulted borrowers have been alerted that their federal benefits---like social security---would be garnished in 30 days. Wage garnishment notices---affecting over 5 million defaulted borrowers--- won't go out until late summer.

What options do borrowers have if they are in default? According to Farkas, there are loan rehabilitation and loan consolidation. "If you have a variety of student loans, you can consolidate them into one," he adds. "There's the income-driven repayment plan---that will take a look at how much money you are making and come up with a payment that you can live with. Temporary-permanent disability programs that you may qualify for to discharge your student loans."

According to the federal student aid website, loan rehabilitation can take several months, but it removes the default from your credit report. A benefit that loan consolidation doesn't offer. However, consolidation is faster to apply for.