Money Matters
Money Matters
Student Loans: Navigating the Student Loan Collection Storm
Student loan borrowers face significant changes as collection practices resume and the Department of Education faces potential dismantling by December 2026. Deborah Paul from the Louisiana Office of Student Financial Assistance explains what borrowers need to know about these changes and how to navigate them effectively.
• Student loans are considered in default after 270 days without payment
• Only 38% of student loans are currently being paid as agreed
• Default consequences include wage garnishment (up to 15%), tax refund seizure, and credit damage
• Collection activities resume May 5th with at least 30 days notice before garnishment begins
• Borrowers can rehabilitate defaulted loans with 9 consecutive monthly payments
• Income-driven repayment plans calculate payments based on what borrowers can afford
• Deferment options exist for those returning to school, serving in military, or facing economic hardship
• Forbearance provides temporary relief for short-term financial difficulties
• The Department of Education dismantling would transfer functions to Treasury, HHS, and Justice departments
• Check your loan status at studentaid.gov by accessing the National Student Loan Data System
• Dual enrollment programs allow high school students to earn college credits, potentially graduating with associate degrees
• Future changes may include eliminating PLUS loans, increasing Pell Grant requirements, and decreasing loan limits
Contact Federal Student Aid at studentaid.gov to check your loan status and explore your options. Default can severely impact your financial future, so take action now before collection activities intensify.
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Welcome to Money Matters, the podcast that focuses on how to use the money you have, make the money you need and save the money you want. Now here is your host, ms Kim Chapman.
Speaker 2:Welcome back to another edition of Money Matters. Today we're going to talk about something that has been really a hot topic in the news student loans. So our returning guest, mr Deborah Paul I guess it's the early day, early day from the Louisiana Office of Student Financial Assistance is going to see if she can get us up to speed in terms of what's been going on. There's been a lot of news, a lot of changes, especially with the change in administration. So welcome back, deborah.
Speaker 3:Thank you, glad to be back to help out.
Speaker 2:Look, I can always count on her to come by and give us some good information, whether it's for the podcast or even my kids that are in college, and so she's got a wealth of information. So hopefully those of you that are in college listening, or if you're the parents listening and you're wondering what's going to happen, especially if you're a co-sign on those student loans, you know we want to talk about what's been happening. So I guess I want to dive into it and just talk about one of the first changes that I remember happening was them saying they were going to do away with the Department of Education. Can you explain what that actually means and how that impacts consumers?
Speaker 3:Yes, the current administration has vowed to dismantle the Department of Education. They've already laid off over half of the staff. Nationwide Department of Education and federal student aid is a component of Department of Education. So if that happens it does require congressional approval. Actually, 60 votes from the Senate would be required to get rid of the Department of Education. And, looking back and doing some research, it's only been in existence for 45 years before it was handled by other things. So basically, federal student aid would be handled by the Treasury Department, the services for students elementary and post-secondary students would be handled by the Department of Health and Human Services, and then Title IX, the civil rights component, would be held by the Department of Justice. So there are several bills out in Congress now talking about dismantling it. Then on the other end they're trying to keep it. So we'll see what happens as it goes through the legislative process.
Speaker 2:So are there any advantages to the average consumer if it's dismantled?
Speaker 3:Well, they want to give states more authority to do what they need to do at that level. So I guess that would go back to 45 years ago what was happening in the Department of Ed, and they'll be giving out grants to states to administer those programs. But there's a lot of talk about students with disabilities being maybe left out or not getting the full room of services that they need because there's no more US Department of Education. So we'll see how that ends up. But they have plans to transfer the components to different agencies and they're saying it's going to be a seamless transfer of service. One of the bills I saw within the Department of Education as we now know it, at the end of December 2026.
Speaker 2:So that's a year and a half from now. Basically, oh, wow. So I guess it's kind of a to be continued and a wait and see. Yeah, what happens, right. So, of course, with everything else is going on there's tariffs, there's inflation, so many things are going up and then it seemed like a boom was the lord in the news because they announced that hey, all you guys that have been on student loan pause. If your student loans are in default, that time is over. If your student loans in default, they're going to start climbing down and they're going to start collection practices. So first let's talk about what defines what makes your student loan be in default.
Speaker 3:If you have not paid on your loan in 270 days, that basically means you're in default. So they can, at that point, start collection. And then, like you said in the news, all of this new activity starts on Monday, may 5th, so it's time for borrowers to beware. So if you have not paid on your loan in 270 days, it's considered to be in default.
Speaker 2:All right. So somebody is listening and saying I have a student loan. I don't know if I've paid on it. Has it been 200 days? Has it been 270 days? How can they figure out what their status is?
Speaker 3:They can contact a federal student aid, which is on the website. There's federal student aid and you can log in, create an account and there's a portal called National Direct Student Loan Data System NSLDS. So everybody who's ever received any type of federal aid Pell Grant, selg Grant, federal Work, study, student loans it's all in that database. You have to create an account and the information is yours so you can look and see where you borrowed, how much you borrowed, what your interest rate was, what the status is, who your servicer is, because the Federal Department of Education has servicers that basically collect on the loans for people who are in default. So that's the first thing to go in there and see, and there are a lot of advocacy groups out there that are helping students to find out where there's, what their status is, so that they don't go into default. If they're in default, what are the options that they can go from there.
Speaker 2:All right. So let's talk a little bit about what the real impact is If your student loan is defaulted. How does that impact your credit or anything else?
Speaker 3:It's defaulted serious. It impacts, as you said, your credit score, which may stop you from even getting a job or the ability to buy a house or even rent an apartment. If you have a low credit score, it shows that you're not maybe responsible. Some insurance companies run your credit report before they decide to insure you.
Speaker 3:Credit is king, yeah, so basically on that side. But then also they could garnish your wages, which is severe, and the federal government can garnish up to 15% of your income if you're in default. So that could be 15%. That can be significant depending on where your income is. Could be that's 15, that can be significant, depending on where your income is.
Speaker 3:Also, um, there are some provisions where people who receive federal benefits like social security, maybe even veterans benefits, that could possibly be garnished if someone is in default because they have disposal, they have access to all of your information. So they know what you're getting, when you're getting it, where it's coming from. You can't hide exactly, great, yeah, so they know what you're getting, when you're getting it, where it's coming from, can't hide, you can't hide Exactly. Great, yeah, so they know all your information. So it's best to try to resolve the delinquency prior to going to default, because you know income tax returns federal and state could be seized Both federal and state. They could be seized as far as default is concerned. So there are a lot of bad things that happen when you go into default.
Speaker 2:So, and which loans is it applied to? Is it all any type of student loan? Is it just a federal student loan? Would there are private student loans, well?
Speaker 3:the federal. What they're going to start collections on ramping down are the federal subsidized and unsubsidized direct student loans. Now some students do borrow from do borrow private loans, thank you. And once they bought the maximum from the federal direct, subsidized and unsubsidized loan programs they needed additional funds so they went to the private loan sector. That's separate so they may have their own collection practices that may ramp up also the parent loan. A parent who received a parent loan for their son or daughter to go to school. They could also be in default on a parent loan and then it would start those collection practices against them.
Speaker 2:So if I look and I check and I see that my student loan is in default, after I kind of collect myself after panicking, what should I do first?
Speaker 3:Like you said, collect yourself. That's the first thing. So there's several things. So if your loan is 90 days delinquent, you know you can usually resolve that pretty easily, and then 91 to 180 days is the late stage and then 270 is default.
Speaker 3:But you can look at trying to rehabilitate your loan. So if you are in default you can ask for a rehab program. So the rehab program would allow you to pay on your loan for nine consecutive months and then it comes out of default, which would help your credit score. It puts you out of default. You don't have that sting on your credit that you're in default because after nine months you have rehabbed your loan. So that's one of the options that students can take who are in default and you know default happens for various reasons and sometimes they show that the rates are higher in default for those who did not complete their program of study. Maybe they started and went two years and then decided not to, or they went into an area that they realized they weren't interested in and dropped out and that sort of thing. So basically, only 38% of student loans are currently being paid.
Speaker 3:The rest only 38% are current on their student loans Current the rest of the percentage. They're delinquent at some stage of delinquency. So yeah, only 30%. So that. So students really need to look at you know where they are and even make plans, because you can also ask for an income driven repayment program. So IDR is where if you're making $40,000, they'll base your payment based on that income and then, as your income increases, then you can increase the payments that you're making. So that's one of the options they can look at loan rehab or the income-driven repayment program.
Speaker 2:So what if I don't have an income? Or just what if I'm just barely making ends meet, which I imagine that's going to be a good percentage of that 62% that's not current on their student loans.
Speaker 3:Well there's some things like deferment forbearance. So maybe you're not working but you went back to school because maybe your first major was psychology and you can't find the job that you want in psychology. So now you're going to want to be a social worker. So you go back to school and once you go back to school you're considered eligible for a deferment. So you can get an in-school deferment which would cease any collection activities and it puts your loan in the safe place until you graduate with your social work degree. Then you may want to get a master's and a PhD and all of that. But another important thing to note is if you're in default, you can't borrow again until that default is resolved. So you really don't want to go into default because if you say I need to go back to school because I need more training, then you don't have the access to not only loans but any federal program. So if you're in default on a loan, you can't even get a Pell Grant, even though you're not working, you have zero income and you think, oh, I'll qualify for a full Pell, but that goes away because you have a default status. So it's important to look at that.
Speaker 3:But the federal government is saying, for those who are in default. They will give students a notice, at least 30 days notice, for instance, before they garnish your wages. So it's not going to just come in. You look at your paycheck at the end of the month or biweekly and say, well, what happened? They will give you notice, which means they're giving you notice, it's time. They're giving you a time to prepare action plan and not just put in the mail with the stack that you don't want to look at. But they're going to communicate with you, probably by email, mail and various sources, so that you can resolve that delinquency before it gets to default to status or, if you're already in default, going looking at garnishment. Wow.
Speaker 3:Another thing you can look at is a forbearance. So a forbearance is a temporary stoppage, cessation of the payment. Interest continues to accrue because it's like a deferment Interest, doesn't a volunteer for, say, the Peace Corps? You're caring for someone who is severely ill, or maybe you're severely ill and you can't work. Those are all reasons that, with documentation, you can qualify for a deferment. On the other hand, forbearance means I just can't afford it right now. My mortgage went up. I live in Louisiana. The flood insurance is going up, my car insurance is increasing. I just don't have money to pay my loan. So you can ask for a forbearance, which is usually 90 days, sometimes 120. And then they'll evaluate your situation intermittently to find out well, how are you doing? Can you restart payment? So forbearance is kind of like putting the problem to the side, but it's going to come back, so it doesn't go away Kicking it down the road, but it's going to catch up with it, but it keeps you in a good status and the timing just really seems to, you know, be horrible for now.
Speaker 2:But of course, you know, I think it's been what, over five years, that there was a pause. Yes, a long pause.
Speaker 3:And I think some people got comfortable because during the Biden administration. And I think some people got comfortable because during the Biden administration he proposed several plans the SAVE plan, some loan forgiveness programs that you know, if you have X amount of dollars, you can get the first 10,000 forgiven. So a lot of people were counting on that, thinking, oh, I only owe 6,000. So if he forgives the first 10,000, I'm good. So they're kind of, you know, out of sight, out of mind, and then, as his administration came to a close and that didn't happen, and then now you have the current Trump administration, it's a total reversal of what the Biden administration proposed and you're right a complete, total reversal.
Speaker 2:I'm not going to have to pay it at all. I need to pay it tomorrow.
Speaker 3:Exactly Right, yeah, so borrowers are confused. Now where do I go? Where do I start?
Speaker 2:Yeah, it really seems to be a confusing, kind of like a little yo-yo and, like I said, to me it seems like, with the economy where it is, it couldn't come at a worse time Anything else borrowers should know or should expect, you know, in addition to the fact that now they need to figure out where they are with their student loans. That's the, that's the main thing Don't let you.
Speaker 3:If you, if you're close to being default, contact your servicer and, like I said, you can go on the federal student aid website and create an account and look at your NSLDS history. If you went to school 10 years ago and you paid for eight years and you still owe two more years, you know, and then and then there are some programs that are still out there to help, like the public service student loan forgiveness. So if you're working for a nonprofit, you're a teacher, you're working for a state or federal agency, if you didn't get laid off from the federal agency, state or federal agency you actually can apply for forgiveness from the public service forgiveness program. So some students have received well, previous borrowers have received their loans forgiven based on that. But I would advise them to get organized. That's the main thing. Get organized. Figure out you know I went to school here this year.
Speaker 3:I went there. I didn't borrow this year, I borrowed that year and see where those loans are, because there are servicers and some, like Navient used to be a servicer for Sally Mae. Well, navient sold their portfolio to others. One is Aid Advantage. So you have to figure out where. Now they notified the borrowers when their loans were sold or being serviced by someone else. But you have to make sure you go back and look that up so you can figure out where you are and what you owe and take care of that delinquency.
Speaker 2:And I know we talked a lot about the students because they're the primary borrowers. But what should parents know, especially if you've done a student loan and you were a cosigner, if you did a parent plus loan? What should parents be aware of or what kind of conversation should they be having with their students?
Speaker 3:Well, the parent did a plus loan. That's strictly on the parents, so they won't come after the student for the parent loan because the parents signed that promissory note. So for their students and now is a good time because we're approaching, you know, graduation season and students are going to be going to orientation and they want to live in luxury and having to borrow, and just you know, look closely at you know, at the choices that you're making or considering, and see what the best option is for you. You know I talk to students a lot and if you want to major in education, you don't have to go to, say, harvard or Princeton to be a teacher, but maybe you can stay home and go to a state school or still get your teacher degree because you're going to still have to take the praxis like all the students. And still get your teacher degree because you're going to still have to take the praxis like all the students. And if you can master that and then become a teacher, maybe you want to go to a more prestigious school to get a master's or a PhD if that's your goal. So look at the cost of choice, like where you want to go, what it costs to go there. Can your parents afford it? You know those conversations should not start in 11th and 12th grade, when your student, I would say, is in middle school. You know, parents, we want you to go to college. What do you think you want to do? Where do you think you want to go? And then that's a good time to start finding in the summer there's a program at the school for the summer two-week camp or one-week camp and just see how they do. It teaches a lot. If it's local, they can go there and handle themselves accordingly.
Speaker 3:Or if it's farther away, some students may not want to be far away from home. You know they love family, but you know I'm graduating, I can't wait to get away. And then once they go away, you know you start hearing oh, I miss home. And I guess I'm talking about personal experience. I had my daughter. She went out of state her first year to Clark, atlanta and I think she missed home more than she still doesn't acknowledge. She'll be 35 soon. But she came back home and went to Southern University and she flourished there because she was on campus so she was close enough to home where she could come home if she wanted to. But then she liked being around family and that.
Speaker 3:So, students, you have to know your child and you know, not just give into whatever whims they have and say, oh, I want to do this, I want to do that, and then when you look at it, is it outside of what we had budgeted for college? Now, have we saved for college which you could look at? Did you have a stored savings plan which Loss for those administer, or 529? Or do you have money saved somewhere else? Or is there a trust fund that we don't know about? So you have to look at all of those options when you're planning so that you don't get in a situation where someone who did not plan they're facing a garnishment or not knowing how much they owe and they're not in the job that they want to be in. So there are a lot of things to consider. It's important when you start looking at finance and post-secondary education.
Speaker 2:And I guess from personal experience too, it seems like student loan. The availability of student loans has been pretty liberal in the past. Yes, do you anticipate that that may change, especially with the Department of Education, if it is eliminated and then those choices are made by the state? Do you anticipate that that may change and maybe you won't have as much flexibility to say, okay, my school costs $10,000, but I'm going to borrow $50,000 so that I can get this apartment?
Speaker 3:It's interesting that you mentioned that, because there are some proposals out there that would change a lot of student aid. One of them is eliminating the PLUS loan. Not sure that's going to happen, but that's one of the things they're looking at. Another is increasing number of hours required to get a full Pell Grant. Currently, if you're full-time 12 hours it's universal you can qualify for a full Pell grant. They're looking at increasing that to 15 hours. So that would affect some programs, definitely Not going not taking the 15 hours, because now students take 12 hours because of you know life, they work or they're parents, or they want to focus more on their studies, you know that sort of thing. So they would have to increase that to 15 hours to get that. And then they're looking at decreasing some of the loan limits so that students don't end up borrowing $200,000 for a law degree or a medical degree. So those are some things that they are considering changing, which would change the entire landscape of how we see students paying for college.
Speaker 2:So there are definitely programs like dual enrollment. What else can students do or parents do now to maybe minimize the cost when it's time for their student to go to college, so that they don't even have to borrow money in the future?
Speaker 3:Dual enrollment is a great one and just here in Louisiana, the Department of Education, the Board of Regents, they want every high school to offer public high schools over at least one dual enrollment program. And now you're hearing these programs where students are actually enrolled in high school and in post-secondary simultaneously. There are students who are graduating with their associate degree as well as their high school diploma. They're halfway through college. Halfway exactly because you need 60 hours for an associate degree, so you're definitely halfway through. So you think of the cost savings of that, even if you don't get the associate degree. But if you have 12 hours, that's basically one semester of college, 15 hours. So that's important and they're offering more.
Speaker 3:Department of Education is funding some of this. Some school districts help pay for dual enrollment. We have a program like Topps Tech Early Start that pays for dual enrollment. Department of Education has a supplemental course allocation that pays. So there are various options. And it used to be you had to have a certain ACT score to do dual enrollment, but now some programs will allow you to have a teacher recommendation. Maybe you're not a great test taker, but you do well in class. The teacher says yeah, I think this student can benefit from having dual enrollment and then that can be another avenue to get those courses in, because that's a big saving when you think about it, particularly if you mean because you're in high school, because that's a big saving when you think about it particularly if you mean because you're in high school.
Speaker 3:So that's gaining a lot of momentum now and I think parents are seeing the value of encouraging their children to pursue dual enrollment because of the benefits of savings later on, particularly if the student wants to do work in an area that requires a master's or a specialist degree or PhD, and even things like physical therapy and occupational therapy. They're no longer bachelor programs, those are doctoral programs. So you want to be a physical therapist? You're looking at six to seven years because you finish with your doctoral degree in physical therapy or occupational therapy. So if you're looking at something that requires additional, additional degree beyond a bachelor's degree, definitely do the role would be a way to look at trying to fund that.
Speaker 2:So one last thing. So we know the payment pause really was kind of spearheaded because of all the trauma from COVID and so before that happened we were responsible, students were responsible for student loan payments. Is this new collection practice any different than what happened before there was a payment pause?
Speaker 3:Well, not the default. Basically, if you were delinquent 270 days you went into default. So I think you know that's not different. So there's not anything harsher going on now with the default. But possibly pursuing garnishment may be a little bit more aggressive, because if you're in default they can do and if they're going to be hiring collection agencies to pursue the garnishment and that sort of thing, that's probably a little bit more aggressive. But default has always been 270 days.
Speaker 2:So we had plenty of people with student loan defaults. It's just maybe they weren't as aggressive going after those students.
Speaker 3:And now it sounds like they're out there and some of the provisions have changed. Because before, when you were in default, you could lose your professional license. So if you were an attorney, you could not get your bar license renewed. If you were a doctor, a nurse, you know, a licensed esthetician. But they started thinking if you can't work, then you definitely can't pay, exactly. So now they've removed that provision where they don't suspend your license if you're in default, because they want you to be able to work to pay the money back. And they're saying that students borrowed the money and it's going to help our economy once students start paying it back. So it's their responsibility, it's not the government. When you sign the promissory note and I'm just quoting what's their responsibility. It's not the government when you sign the promissory note, and I'm just quoting what's been said. When you sign the promissory note, you said that you would repay these funds and they want students to repay that.
Speaker 2:You heard it from the messenger and I would say it's probably worth repeating again. How can students go and check their status to see if they are in default?
Speaker 3:Go to the federal student aid website, which is student aid S-T-U-D-E-N-T-A-I-D, dot gov, and then they can look up student loans and then create an account for the National Student Loan Direct data system and they can look at all of their financial aid history, not just loans, and then see Because also it will tell them if you want to go back to school, you're not in default, do you still qualify for Pell? All of that information will see if you've exhausted Pell eligibility, because you only can get Pell for up to six years. So if you've exhausted that, then what else is available? To go back to school to get additional credentials or education.
Speaker 2:All right, deborah, it seems like this is going to be to continue. We'll have to see what other changes come, but thank you so much for providing this update. I know that there are a lot of students that are concerned that need this information, so now you know what action you need to take next. Thank you, you're welcome.
Speaker 1:It's time for Blueprint Building Blocks Small changes that lead to big financial wins. Let's stack up for success.
Speaker 2:Check your student loan status. Remember visit studentaidgov to review your student loan information so that you can find out what your status is. If you're in default, act now. Contact your student loan servicer or the default resolution group immediately to explore rehabilitation or consolidation options and then protect your finances. Understand that default can lead to wage garnishment, tax refund, seizure and credit damage. Act early to prevent deeper financial harm.
Speaker 1:That's a wrap on today's Blueprint Building Blocks. Stay on track with your financial journey. Subscribe to the Money Matters podcast and visit neighborsfcuorg slash financial wellness for more tools to help you build a strong financial future.
