If you’ve defaulted your student loan payments because of the pandemic, your grace period is almost up. This will be the first time in five years that the repayments have begun.
Almost 43 million Americans have student loans. Robert Wilson and his wife Mary were part of that number.
“We both had about $8,000 each,” Wilson said.
They paid it off within the first year of their marriage.
“We were young at the time but we knew we had a lot of things in front of us. Saving up for a house…we didn’t have children yet. So it was a beginning step, but a necessary step,” Wilson said.
But not everyone has been able to pay off their student loans just yet, like Johnny Suarez.
“I got an email the other day saying hey you owe us money,” Suarez said.
Suarez attended school online and then headed for the Navy. He said his wife also has student loans which were paused for a while.
“She didn’t have to pay hers for a long time, and she got the email and started saying Hey, we have to start paying my stuff,” Suarez said.
If you defaulted on your student loan payments, your debt will be collected starting next month.
A defaulted loan is a loan that a borrower hasn’t made payments on for 270 days. When it enters default, it becomes eligible for mandatory collections. And that could be collected through wage garnishment. That means what you make in a paycheck could be held back by an employer for the payment of a debt.
“People being over indebted to any kind of bank get to the point where they’re just paying interest. They end up being serviced from the bank or getting low-quality jobs and can’t afford to make anything but that, and that’s not a good system,” Wilson said.
Debt may also be collected through offsetting tax refunds or other federal benefits like Social Security.
The pause on collecting defaulted loans started in 2020 because of the economic hardships faced during the pandemic, but Wilson said garnishing people's wages might cause an economic problem.
“It’s one of the issues that has recently affected the economy. People who were spending more freely now have to pay their student debt. That was money that was circulating the economy, that’s now going to the banks,” Wilson said.
Suarez also added that the mandatory repayments will require some financial adjustments for some families as well.
“We are just one income. My wife is a stay-at-home mom, that’s kind of what we wanted. Stuff like this, I can’t pick up an extra shift because I get paid salary. It’s not too much of a hassle how we have to figure it out but we do have to keep it in mind now,” Suarez said.
The five million or more Americans with defaulted student loan payments will have their loans sent for collections on May 5.
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