LAS VEGAS (KTNV) — The U.S. Department of Education will resume sending defaulted federal student loan accounts to collections starting Monday, ending a five-year pause that began during the COVID-19 pandemic.
WATCH | UNLV student shares how he's planning to repay his student loans
Nearly 5 million borrowers who have defaulted on their loans after 360 days of missed payments could face collections if they haven't made arrangements to pay their loans back.
"If you take out a loan, you have to pay it back," said Karoline Leavitt, White House Press Secretary:
According to the Department of Education, 42.7 million borrowers have more than $1.6 trillion in student debt. Last week, I told you how in Nevada alone, nearly 358,000 borrowers owe more than $12.4 billion in student debt, according to the Education Data Initiative. Nearly 12% of them are in default.
WATCH | Nearly 12% of Nevada's student loan holders in default as federal collection efforts restart
"We all know what we are getting ourselves into," said UNLV business management student Judih Smith.
Smith has taken out two student loans worth roughly $5,000. He says his scholarships covered most of his costs, but he needed loans to cover the remainder.
"I think it would have been more challenging if those [loans] weren't available, but I am going to figure out how to get to school and get my degree anyway," Smith said.
He doesn't have to make payments until six months after graduation but says he already has a plan to pay them off.
"I've been trying to save right now and invest right now. Later on I'll have the money and by then, I'll be in my career field so I am not too worried about that," Smith said.
While he understands the challenges faced by student loan borrowers, he emphasizes the importance of fulfilling that responsibility and repaying the debt.
"Say if they didn't tell us what we were getting ourselves into or we didn't know that would be a different thing," Smith said.
The Department of Education says it has not collected on defaulted loans since March 2020, but Trump administration officials announced that ends on May 5. If borrowers don't make a repayment plan, they could face involuntary collections.
WATCH | Student loans in default to be referred to debt collection, Education Department says
These are the consequences of defaulting on your student loans, according to the Federal Student Aid website:
- The entire unpaid balance of your loan and any interest you owe becomes immediately due (this is called "acceleration").
- Your tax refunds and federal benefit payments may be withheld and applied toward repayment of your defaulted loan (this is called “Treasury offset”).
- Your wages may be garnished. This means your employer may be required to withhold a portion of your pay and send it to your loan holder to repay your defaulted loan.
- You can no longer receive deferment or forbearance, and you lose eligibility for other benefits, such as the ability to choose a repayment plan.
- You lose eligibility for additional federal student aid such as Federal Pell Grants and student loans.
- The default is reported to credit bureaus, damaging your credit rating and affecting your ability to buy a car or house or to get a credit card.
"The government can and will collect defaulted federal student loan debt by withholding money from borrowers, tax refunds, federal pensions and even their wages," Leavitt said.
The department says only 38% of student loan borrowers are current on their payments.
Borrowers can visit StudentAid.gov to check if they are in default and get more information.
