Changes to student loan payments impact borrowers in default

(WAND) - Changes are in effect for the way you pay federal student loans. This is geared towards people who have not made payments. The Trump Administration said that the new plan will collect payments through withholding tax refunds or by taking money out of your paycheck.

"The biggest concern I'm hearing from both borrowers and defaults who are at risk of wage garnishment and borrowers that are delinquent, is the fact that this is kicking in at the same time that their health care premiums are shooting up, that's really hurting a lot of the consumers that I work with," Betsy Mayotte said.

If a borrower has not made a payment on a loan in more than 270 days, the loan is considered in default. Mayotte is the president of the Institute of Student Loan Advisors, providing free expert loan advice.

"What I see for defaulted borrowers usually is one of two things. It's either anxiety and avoidance, where they're stressed out about their finances, they don't feel like they can afford their student loans, and they just sort of ignore it," Mayotte said.

Another common issue is not getting mail notices. Federal law requires the Department of Education to request that the Department of the Treasury withhold federal or state tax refunds. Even social security disability benefits are up for grabs.

"This is a lot more common now since the long pause we had, for repayment due to COVID, they failed to update their contact information to their loan holder," Mayotte said.

It's a process called offset, and borrowers will get a letter of intent in the mail. Two ways to bounce back from default loans are consolidation and rehabilitation.

"Consolidations are usually made with one or two payments on time payments in a row. They'll release the loan for consolidation. And at that point, the loans are back in good standing. Rehab takes longer. It's nine consecutive on-time payments. Those are based on your income," Mayotte said.

Mayotte says rehabilitation removes the default line from your credit report, boosting your credit score. You can check federalaid.gov to see your loan status. For free assistance with loan repayment plans, you can visit this link.