After a five-year hiatus, federal student loan collections are officially resuming. Since March 2020, pandemic-era relief programs have paused payments and halted collections, but those programs have largely ended.
If your federal student loans are in default, now is the time to explore your options and take the first steps toward getting back on track. Rest assured, you are not alone—Vermont Federal Credit Union is here to help you understand your student loan choices and move forward with confidence.
Quick note: This update affects only federal student loans. If you have private student loans, including those from Vermont-based lenders, check with your provider for specific terms.
What Does It Mean to Be in Default?
A federal student loan is deemed in default if no payment has been made for over 270 days. Upon reaching this point, the full loan balance is immediately due, and the default status is reported to credit agencies, which can seriously impact your credit score.
Missing even a few payments before reaching default can negatively impact your credit score, so it's wise to stay proactive.
Not Sure If You're in Default?
It’s easy to check your loan status! Just log into your account at studentaid.gov or reach out to your loan servicer directly. They’ll be able to confirm your loan status and walk you through the next steps.
What Happens Now That Collections Are Resuming?
If you r loan is in default, it is important to be aware that the collections process has resumed. Borrowers who are in default may begin to experience a range of collection activities, which could include:
- Collection calls
- Wage garnishment (deductions from your paycheck)
- Tax refund offsets
- Reduced Social Security benefits
That might sound overwhelming, but rest assured, there are options available to help you avoid these challenges!
How Can I Get Out of Default or Lower My Monthly Payments?
There are numerous ways to help you regain control of your student loans, even if you find yourself in default. It's important to understand that you have options, and taking the right steps can lead to a more manageable financial future. Here's a detailed look at what you might consider:
Loan Rehabilitation
Loan rehabilitation is where you enter into a formal agreement with your loan servicer to make nine consecutive, timely monthly payments. Although collections may persist during this period, some relief options could become available after five payments.
Income-Driven Repayment Plans (IDRs)
Even though the Biden Administration’s SAVE plan didn’t pass, several IDR plans remain available. These plans calculate your monthly payment based on your income and family size—often making them more manageable.
Federal Student Loan Consolidation
You may be able to combine your federal loans into one loan with a fixed interest rate. To qualify, you’ll need to either make three consecutive payments on your defaulted loan or enroll in an IDR plan.
Private Student Loan Refinance
Private student loan refinance involves obtaining a new loan with altered terms from a financial institution. This can enable you to consolidate several loans into a single, manageable payment, potentially reducing your monthly payment. However, if your loans are in default, it’s best to focus on rehabilitation or consolidation first. Once you’re back in good standing, refinancing could be a strong option to explore.
Important: Refinancing federal loans with a private lender means giving up certain federal benefits like interest rate discounts, deferment options, or loan forgiveness. Make sure to weigh your options carefully.
Watch Out for Scams
Unfortunately, scammers often target borrowers who are feeling overwhelmed. You should never have to pay for help managing your loans. Always work directly with your loan servicer or trusted student loan providers. Visit studentaid.gov for tips on how to protect yourself.
The Bottom Line
Getting a handle on your student loans doesn’t have to feel impossible. When managing federal student loans, the most important step is to take action. Check your loan status, explore your options, and connect with your servicer. By staying proactive, you can protect your financial health and build a stronger path forward.
Need help understanding your student loan options in Vermont? We’re here to support you every step of the way. Contact us today to learn more about your options!
