Coloradans impacted as Department of Education resumes collecting on student loans

An important deadline hits May 5, for federal student loan borrowers as the government can start taking money out of tax refunds, Social Security benefits, and eventually, paychecks. It's raising a lot of questions and anxiety for millions of borrowers.

Currently, more than 5 million borrowers are in default and are at risk of having their benefits or wages garnished, and that number could go up even more in the months ahead.

This only applies to borrowers who have federal student loans and are in default. Federal student loans go into default after nine months without a payment. You can check the status of your loan by contacting your loan holder or going to the Federal Student Aid website.

There are several options to get a loan out of default, like signing up for loan rehabilitation, enrolling in an income-driven payment plan, or making monthly payments on the loan.

Jennifer Helgeson is the Director of Compliance at MSU Denver's Financial Aid & Scholarships Office. She said don't panic if you're impacted, and educate yourself on your options to get a loan out of default.

"You want to take action immediately. Understand what's going on with your student loans, if you don't already, and if you're feeling overwhelmed about the amount of payments, contact your lender and see what options are out there for you," said Helgeson.

Helgeson added that there are a lot of implications if you don't take action on a loan that's in default. She said it's something to get ahead of because defaulted loans could negatively impact your credit history, your ability to get another loan, and your purchasing power.

"The government doesn't want you to default on your loans, and so they will work with you to get you into a payment plan that is more affordable for you. So that's really where you want to start, is to contact your loan holder and discuss your options with them," said Helgeson.

When your loan isn't in default, there are options for people still unable to pay their student loans, like deferments or forbearance.

Wage garnishment notices will be sent out later this summer. No federal student loan has gone to collections since March 2020, when President Trump paused payments and accruing interest during the COVID-19 pandemic. The Biden administration extended that pause, which ended in October.

"As of May 5, if you have a tax return refund that could be used to pay off your student loans, you wouldn't receive it if you receive federal benefits, such as Social Security, that also could be used to pay your student loan," said Helgeson. 

Helgeson added that for anyone who is considering taking out student loans, she recommends limiting your borrowing and only taking out what you need.