Student Loan Defaults Surge as Collections Resume, Impacting Borrowers Nationwide
As pandemic-related student loan forbearance ends, the U.S. Department of Education has initiated collections on defaulted loans, affecting nearly 10 million borrowers. These individuals are now at risk of wage garnishments, tax refund seizures, and reductions in federal benefits.
The resumption of collections has led to significant credit score declines for many. Estimates indicate that over nine million borrowers could see their credit scores drop, with some experiencing reductions of up to 171 points. This decline hampers access to mortgages, car loans, and other credit-dependent services.
Compounding the issue, the Education Department has warned colleges and universities that high default rates among former students could jeopardize their access to federal student aid. Institutions where more than 30% of students default over three years, or 40% in a single year, risk losing eligibility for federal funding.
The transition back to repayment has been challenging for many borrowers, with some reporting inadequate communication from loan servicers and confusion over loan statuses. These issues have led to missed payments and unexpected credit consequences.
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