Department of Education Prepares to Start Collection Process
By Barbara Heimlich
Editor
Source: State of Connecticut
Recent federal actions authorizing the US Department of Education to send student loans in default to collections, including garnishing up to 15% of a person’s income, will have a disastrous effect on the state economy, according to Democratic leaders.
“Student loan debt drags down individuals and our economy,” said state Rep. Eleni Kavros DeGraw, D-Avon. “We continue to encourage people to go to college in order to achieve higher salaries in the workplace and increase their earning potential over their lifetimes, and even if they have scholarships, they are often not enough to cover the cost of college today.”
The student loan debt relief program changed lives for the better, she said, allowing people to start families and purchase cars and homes. “Pulling the rug out from under them is cruel and pointless,” she said.
In a news conference with other Democratic leaders, and backed by officials and students from Connecticut’s public colleges and universities, Rep. Corey Paris, D-Stamford, called the decision to start collection processes “a cruel and calculated assault on more than 500,000 hardworking Connecticut borrowers” who are struggling with their debt.
“To threaten them with the loss of their tax refunds and the garnishment of up to 15% of their disposable income is unconscionable,” he said. “It will not only deepen existing financial hardship but push countless families closer to poverty.”
House Republican leader Vincent Candelora, R-North Branford, said he sympathized with those struggling with student loan debt.
“Individuals that take out loans, I’m sympathetic to the cost of college, I’ve got three children in college,” he said. “But it’s something you need to plan for. There has to be some level of responsibility on the individual.”
The Democrats touted the state’s Student Loan Reimbursement Program, which provides up to $5,000 a year, for up to four years, in loan forgiveness. The program, which passed with bipartisan support, went into effect the first of January.
The Education Department is urging borrowers to contact the Default Resolution Group before garnishments begin. They should also explore repayment options, including income-driven repayment or loan rehabilitation.
On the same day collections resumed, the Education Department issued a letter to colleges and universities, reminding them they are legally required to help borrowers stay on track. Institutions with high default rates could lose access to federal student aid.
A record number (20.5%) of student loan borrowers are now at least 90 days past due, nearly double the pre-pandemic rate of 11.5%, according to TransUnion, a credit reporting agency in Queens, New York.
“More than one in five federal student loan borrowers with a payment due have been reported as seriously delinquent, but this figure may in fact be much higher,” said Michele Raneri, vice president of US research at TransUnion. “The complexity arises in part from the various reasons borrowers might not be making payments without being considered delinquent, such as being a current student or in deferment or forbearance.”
The 30-day notice is shorter than typical, higher education expert Mark Kantrowitz told CNBC. Before the pandemic, student loan borrowers were usually given a notice of 65 days before having their federal benefits garnished.
Social Security retirement and disability benefits were “a last resort” for garnishment, usually a year after other collection attempts failed.
“Given the timing, it sounds like they are not pursuing the normal due diligence schedule for collecting defaulted federal student loans,” Kantrowitz said to CNBC.
Retirees are increasingly at risk from student loan debt. Education Department data says about 2.9 million borrowers are at least 62 years old, making up about 6.3% of those with federal student loan debt. That’s up 71% from 2017. The average 62-year-old borrower owes $42,780 in federal debt, including Parent PLUS loans.
