Core Insights - The U.S. government is intensifying collection efforts on overdue federal student loan debt, with less than 40% of borrowers current on payments [1][2] - Nearly 43 million borrowers owe over $1.6 trillion in student loans, with 5 million borrowers having not made a payment in over 360 days [1] Group 1: Default and Collection Process - Federal student loans go into default after 270 days of missed payments, at which point the total loan balance becomes due [3] - Loans in default are transferred to the Department of Education's Default Resolution Group or collections agencies, initiating collection efforts including wage garnishment [4] - Wage garnishment is restarting for the first time in five years, with about 1,000 borrowers receiving 30-day garnishment notices this week, increasing monthly [5] Group 2: Consequences of Default - If in default, 15% of a borrower's income can be withheld from paychecks without a court hearing, and federal benefits and tax refunds may also be seized for repayment [5] - Borrowers in default can regain eligibility for benefits such as deferment, forbearance, and loan forgiveness after rehabilitation or consolidation of loans [8] Group 3: Options for Borrowers - Borrowers can avoid garnishment through three main options: loan rehabilitation with nine affordable payments over 10 months, loan consolidation into a new loan with an income-driven repayment plan, or full repayment of the total balance [7] - The One Big Beautiful Bill Act allows borrowers to rehabilitate their loans up to two times, increasing their chances of regaining eligibility for federal student aid [8] Group 4: Changes in Forbearance Plans - The Saving on a Valuable Education (SAVE) forbearance plan is being eliminated, and pending applications are being closed, with borrowers transitioned to new repayment plans [9] - Borrowers are encouraged to use the government's updated free loan repayment calculator to explore feasible repayment options [10]

Core Insights - The Department of Education will resume garnishing wages of defaulted borrowers starting in February, affecting over 5 million individuals who have been in default for 270 days or more [1][8] - Borrowers will be notified on January 7 and have 30 days to rectify their situation before wage garnishment begins [2] - Experts emphasize the importance of borrowers taking proactive steps to regain good standing to avoid negative impacts on their credit and financial situation [3] Loan Consolidation - Loan consolidation allows borrowers to combine multiple student loans into a single loan, which can help them exit default [5][8] - To consolidate, borrowers must enroll in an income-driven repayment plan or make three consecutive, voluntary, on-time payments on the defaulted loan [5] - It is important to note that while consolidation brings borrowers out of default, the record of default and late payments will remain on their credit report [6] Loan Rehabilitation - Loan rehabilitation is a longer process but removes the defaulted loan from a borrower's credit report and does not add accrued interest to the balance [7] - To rehabilitate a loan, borrowers must make nine voluntary, reasonable, and affordable monthly payments over ten consecutive months as determined by their loan servicer [9] - This option is crucial for borrowers looking to restore their credit standing without the burden of additional interest [7]