WEBVTT 00:00:00.000 --> 00:00:02.640 Welcome back to Empowering Your Finance. Today, 00:00:02.700 --> 00:00:05.160 we're doing a deep dive into student loan debt, 00:00:05.339 --> 00:00:08.820 specifically focusing on a big question. Is student 00:00:08.820 --> 00:00:11.880 loan garnishment resuming in 2025? That's right. 00:00:12.000 --> 00:00:14.900 It's a topic causing a lot of anxiety and understandably 00:00:14.900 --> 00:00:17.399 so. For about five years now, we've had this 00:00:17.399 --> 00:00:20.579 pause on federal student loan collections put 00:00:20.579 --> 00:00:23.120 in place because of the pandemic. It gave a lot 00:00:23.120 --> 00:00:25.260 of people some breathing room. Definitely. But 00:00:25.260 --> 00:00:27.780 that period is officially coming to an end. And 00:00:27.780 --> 00:00:31.500 the date we need to know is May 5th, 2025. That's 00:00:31.500 --> 00:00:33.579 when the Department of Education plans to restart 00:00:33.579 --> 00:00:36.640 collection efforts. Exactly. So in this deep 00:00:36.640 --> 00:00:38.299 dive, we're going to break down what that really 00:00:38.299 --> 00:00:40.679 means for you, especially if you've maybe defaulted 00:00:40.679 --> 00:00:42.560 on your loans or you're worried you might be 00:00:42.560 --> 00:00:45.200 at risk. We'll cover the timeline, the reasons 00:00:45.200 --> 00:00:47.159 behind this change, what you can expect to happen. 00:00:47.359 --> 00:00:50.000 And maybe most importantly, what options are 00:00:50.000 --> 00:00:51.859 actually available to protect yourself financially. 00:00:52.359 --> 00:00:54.179 Because this isn't a small issue, is it? The 00:00:54.179 --> 00:00:56.240 numbers are just staggering. They really are. 00:00:56.340 --> 00:00:59.899 Over $1 .6 trillion in federal student loan debt. 00:01:00.079 --> 00:01:04.239 Held by, what, 42 .7 million borrowers? Yeah, 00:01:04.299 --> 00:01:06.560 almost 23 million people. It touches a huge part 00:01:06.560 --> 00:01:08.519 of the U .S. population. Okay, so let's get into 00:01:08.519 --> 00:01:12.319 the details. The pause started March 2020. The 00:01:12.319 --> 00:01:16.560 restart date is May 5, 2025. What happens between 00:01:16.560 --> 00:01:19.030 now and then? Or right after? Well, the plan 00:01:19.030 --> 00:01:21.769 is for 30 -day advance notices to be sent out 00:01:21.769 --> 00:01:23.510 to borrowers who are affected. So you should 00:01:23.510 --> 00:01:25.430 get a heads up. A warning, basically. Right. 00:01:25.510 --> 00:01:28.030 And then the first actual involuntary collections, 00:01:28.349 --> 00:01:29.930 the ones using the Treasury Department's offset 00:01:29.930 --> 00:01:32.689 program, that's expected probably around June 00:01:32.689 --> 00:01:36.090 2025. An offset program means they can take things 00:01:36.090 --> 00:01:38.790 like your tax refund? Exactly. Tax refunds, potentially 00:01:38.790 --> 00:01:40.810 Social Security benefits, wage garnishment later 00:01:40.810 --> 00:01:43.569 on. That's the mechanism. Okay. And this is all 00:01:43.569 --> 00:01:45.709 happening against that backdrop of, you know, 00:01:45.730 --> 00:01:49.569 $1 .6 trillion in debt, nearly 43 million borrowers. 00:01:49.769 --> 00:01:52.409 Attempts at broad forgiveness didn't quite pan 00:01:52.409 --> 00:01:55.269 out legally. Correct. Those faced significant 00:01:55.269 --> 00:01:57.989 court challenges. And it's interesting that current 00:01:57.989 --> 00:02:00.430 Secretary of Education Linda McMahon has also 00:02:00.430 --> 00:02:02.709 been calling for reform in higher ed financing 00:02:02.709 --> 00:02:06.140 itself. Kind of focusing on transparency. accountability 00:02:06.140 --> 00:02:09.300 from universities regarding costs. It hints at 00:02:09.300 --> 00:02:11.479 maybe a longer term shift in how the government 00:02:11.479 --> 00:02:14.740 approaches this whole issue. Now, looking at 00:02:14.740 --> 00:02:17.860 who's most vulnerable right now, the default 00:02:17.860 --> 00:02:20.460 numbers are pretty scary. They are. Estimates 00:02:20.460 --> 00:02:24.300 are around 5 .3 million borrowers currently in 00:02:24.300 --> 00:02:27.810 default. That's a lot of people. And on top of 00:02:27.810 --> 00:02:30.030 that, another four million or so are delinquent, 00:02:30.250 --> 00:02:33.509 meaning late on payments. And some data, I think 00:02:33.509 --> 00:02:36.150 from the New York Fed, suggested maybe 10 million 00:02:36.150 --> 00:02:38.169 borrowers fell behind after the payment pause 00:02:38.169 --> 00:02:40.669 ended last year. It's a precarious situation 00:02:40.669 --> 00:02:43.550 for many. And are there specific groups expected 00:02:43.550 --> 00:02:46.050 to be hit harder by this resumption? Unfortunately, 00:02:46.189 --> 00:02:48.590 yes. The data points towards those already facing 00:02:48.590 --> 00:02:51.129 financial struggles, folks below the poverty 00:02:51.129 --> 00:02:53.750 line, for instance. And studies often show women 00:02:53.750 --> 00:02:56.240 carry more debt relative to earnings. And for 00:02:56.240 --> 00:02:59.240 those in default, that threat of wage garnishment 00:02:59.240 --> 00:03:01.919 up to 15 percent without even needing a court 00:03:01.919 --> 00:03:04.439 order, that's significant. It really is. Which 00:03:04.439 --> 00:03:06.780 naturally leads to the question, why now? Why 00:03:06.780 --> 00:03:08.580 resume collections at this point? Right. What's 00:03:08.580 --> 00:03:10.719 the official reasoning? A big part of the state 00:03:10.719 --> 00:03:13.199 in rationale is relieving the burden on taxpayers. 00:03:13.860 --> 00:03:17.000 The idea is when federal loans aren't repaid, 00:03:17.180 --> 00:03:21.400 the cost ultimately falls on taxpayers. So using 00:03:21.400 --> 00:03:24.560 the Treasury offset program to recoup funds is 00:03:24.560 --> 00:03:27.460 framed as fiscal responsibility. Pretty much. 00:03:27.840 --> 00:03:29.939 Recovering outstanding debt, making the system 00:03:29.939 --> 00:03:32.300 more, well, sustainable financially. That's the 00:03:32.300 --> 00:03:34.780 argument. And we also touched on Secretary McMahon's 00:03:34.780 --> 00:03:38.060 position regarding loan forgiveness. Yes. Her 00:03:38.060 --> 00:03:40.439 stance is quite clear. She believes the executive 00:03:40.439 --> 00:03:43.060 branch doesn't have the authority for that kind 00:03:43.060 --> 00:03:46.139 of broad sweeping loan cancellation. Which is 00:03:46.139 --> 00:03:47.939 a different approach than we saw previously. 00:03:48.379 --> 00:03:51.060 Definitely. It marks a shift. emphasizing constitutional 00:03:51.060 --> 00:03:53.919 boundaries, as she sees them, regarding debt 00:03:53.919 --> 00:03:56.939 and spending power. It moves towards a more individual 00:03:56.939 --> 00:03:59.259 responsibility model for the debt. And wasn't 00:03:59.259 --> 00:04:01.280 there also something from Congress? Yes, good 00:04:01.280 --> 00:04:04.080 point. Back in October 2023, Congress actually 00:04:04.080 --> 00:04:06.199 mandated the resumption of normal loan collection 00:04:06.199 --> 00:04:08.800 activities. Ah, OK, so that followed the Supreme 00:04:08.800 --> 00:04:11.259 Court ruling against the Biden administration's 00:04:11.259 --> 00:04:14.139 debt relief plan. Exactly. So now there's a legislative 00:04:14.139 --> 00:04:16.740 directive essentially pushing this forward, too. 00:04:17.000 --> 00:04:20.500 OK, so timeline reasons. Let's get practical. 00:04:21.199 --> 00:04:23.699 What should borrowers actually expect to see 00:04:23.699 --> 00:04:27.779 happen? That Treasury offset program, TOP, coming 00:04:27.779 --> 00:04:30.600 back. Right. This is key for anyone in default, 00:04:30.779 --> 00:04:33.019 which usually means being about a year behind 00:04:33.019 --> 00:04:37.769 on payments. Starting May 5th, 2025, involuntary 00:04:37.769 --> 00:04:40.410 collections can restart. And that includes? Garnishing 00:04:40.410 --> 00:04:43.009 federal tax refunds, potentially offsetting Social 00:04:43.009 --> 00:04:45.449 Security payments, and then wage garnishment, 00:04:45.470 --> 00:04:47.930 which is expected a bit later, maybe summer 2025. 00:04:48.410 --> 00:04:50.310 And people will get letters about this. Yes. 00:04:50.350 --> 00:04:52.310 The Treasury Department is supposed to send notification 00:04:52.310 --> 00:04:55.009 letters. And we're talking potentially 5 million 00:04:55.009 --> 00:04:57.910 borrowers in default, plus maybe another 4 million 00:04:57.910 --> 00:05:00.250 considered at high risk. It's a substantial group. 00:05:00.470 --> 00:05:03.120 Wow. Beyond those letters, what other communication 00:05:03.120 --> 00:05:05.120 is planned? The Department of Education is launching 00:05:05.120 --> 00:05:08.100 a communications campaign specifically aimed 00:05:08.100 --> 00:05:10.079 at borrowers in default. Trying to reach them 00:05:10.079 --> 00:05:12.120 directly. Yeah, sending official notices about 00:05:12.120 --> 00:05:14.540 their loan status, explaining the Treasury Offset 00:05:14.540 --> 00:05:16.720 Program, again, that mechanism for taking funds. 00:05:16.980 --> 00:05:19.019 And pointing them towards resources. Exactly. 00:05:19.319 --> 00:05:22.279 StudentAid .gov is the main hub. It'll have guidance, 00:05:22.420 --> 00:05:24.339 resources. You should definitely check your status 00:05:24.339 --> 00:05:26.699 there or with your loan servicer. And if you 00:05:26.699 --> 00:05:29.519 are in default. The advice is to contact the 00:05:29.519 --> 00:05:32.860 default resolution group. So information is key, 00:05:33.120 --> 00:05:37.120 but you mentioned potential hiccups, problems. 00:05:37.459 --> 00:05:39.199 Yeah, there are some potential complications. 00:05:39.360 --> 00:05:43.439 There's apparently a big backlog, like 1 .8 million 00:05:43.439 --> 00:05:46.259 applications for income -driven repayment plans 00:05:46.259 --> 00:05:48.949 still waiting to be processed. That could cause 00:05:48.949 --> 00:05:51.290 delays. It could. Plus, there have been some 00:05:51.290 --> 00:05:53.389 staff cuts at the education department, which 00:05:53.389 --> 00:05:55.589 might impact the support available. And then 00:05:55.589 --> 00:05:57.430 there are ongoing legal challenges around some 00:05:57.430 --> 00:05:59.470 repayment plans that have even led to forced 00:05:59.470 --> 00:06:02.290 forbearance for some. It's a bit messy. So getting 00:06:02.290 --> 00:06:04.470 help might not be instant or easy for everyone. 00:06:04.610 --> 00:06:07.370 What happens if someone just stays in default, 00:06:07.610 --> 00:06:10.370 ignores the notices? Well, the consequences can 00:06:10.370 --> 00:06:12.689 be pretty harsh and long -lasting. Your credit 00:06:12.689 --> 00:06:14.990 report and score take a big hit. Which affects 00:06:14.990 --> 00:06:18.540 borrowing for a house, a car? Absolutely. You 00:06:18.540 --> 00:06:21.459 also lose eligibility for things like deferment 00:06:21.459 --> 00:06:24.540 or forbearance or switching to other repayment 00:06:24.540 --> 00:06:28.040 plans, the wage garnishment, the offset of federal 00:06:28.040 --> 00:06:30.360 payments that can just keep happening. And no 00:06:30.360 --> 00:06:32.100 more federal student aid if you wanted to go 00:06:32.100 --> 00:06:34.519 back to school? Correct. You become ineligible 00:06:34.519 --> 00:06:37.220 for that, too. Federal loans typically default 00:06:37.220 --> 00:06:39.839 after 270 days of missed payments, remember. 00:06:40.579 --> 00:06:43.660 Is bankruptcy ever an option? I know it's famously 00:06:43.660 --> 00:06:46.180 difficult for student loans. It is technically 00:06:46.180 --> 00:06:48.319 possible under something called the Brunner test, 00:06:48.560 --> 00:06:51.500 which requires proving undue hardship. It's a 00:06:51.500 --> 00:06:53.720 very high bar. And there's some indication the 00:06:53.720 --> 00:06:55.819 current administration might interpret that standard 00:06:55.819 --> 00:06:58.600 quite strictly. So it's not an easy out. OK, 00:06:58.660 --> 00:07:01.040 so serious consequences. But there are options, 00:07:01.160 --> 00:07:03.000 right? Let's talk about those. Income driven 00:07:03.000 --> 00:07:07.139 repayment plans or. Yes, IDR plans are crucial. 00:07:07.360 --> 00:07:09.540 They base your monthly payment on your income 00:07:09.540 --> 00:07:12.180 and family size, not just the loan amount. Which 00:07:12.180 --> 00:07:14.379 can make payments much more affordable for people. 00:07:14.720 --> 00:07:17.060 Exactly. It can drastically lower your payment, 00:07:17.180 --> 00:07:19.699 sometimes even to $0, and it helps you avoid 00:07:19.699 --> 00:07:22.360 default and garnishment. And they've been working 00:07:22.360 --> 00:07:25.720 to simplify enrollment, less paperwork. That's 00:07:25.720 --> 00:07:27.759 good news. Give us a quick example. Sure. Someone 00:07:27.759 --> 00:07:31.300 earning, say, $40 ,000 a year with a couple of 00:07:31.300 --> 00:07:34.180 dependents might see their payment drop significantly. 00:07:34.750 --> 00:07:37.350 under plans like SVE, for example. Yeah. Makes 00:07:37.350 --> 00:07:39.990 a real difference. And what about that yearly 00:07:39.990 --> 00:07:42.449 income recertification? I remember that being 00:07:42.449 --> 00:07:44.649 a pain point. Yeah, that's another positive change. 00:07:45.149 --> 00:07:47.750 They're reducing how often you need to recertify 00:07:47.750 --> 00:07:51.009 your income for IDR plans. So fewer hoops to 00:07:51.009 --> 00:07:53.670 jump through each year? Hopefully. The goal is 00:07:53.670 --> 00:07:55.769 to make it easier to stay enrolled and prevent 00:07:55.769 --> 00:07:58.170 people from accidentally falling out of compliance 00:07:58.170 --> 00:08:00.730 and into default because of paperwork issues. 00:08:01.199 --> 00:08:03.699 For anyone listening who feels overwhelmed, where's 00:08:03.699 --> 00:08:06.439 the single best place to go for reliable info? 00:08:06.680 --> 00:08:08.920 Hands down, studentaid .gov. That's the official 00:08:08.920 --> 00:08:10.459 source from the Department of Education. What 00:08:10.459 --> 00:08:13.220 can you find there? Everything, really. Info 00:08:13.220 --> 00:08:15.600 on getting out of default through rehabilitation 00:08:15.600 --> 00:08:18.360 that usually involves making nine affordable 00:08:18.360 --> 00:08:22.180 payments over 10 months. Details on loan consolidation, 00:08:22.439 --> 00:08:25.269 which can sometimes help. All the different IDR 00:08:25.269 --> 00:08:27.529 plans explained. Yes, descriptions of all the 00:08:27.529 --> 00:08:29.769 plans, calculators to help you estimate your 00:08:29.769 --> 00:08:32.289 payment, contact info for your specific loan 00:08:32.289 --> 00:08:34.730 servicer. And guidance on avoiding that treasury 00:08:34.730 --> 00:08:36.830 offset program we talked about. Absolutely. It's 00:08:36.830 --> 00:08:38.110 all laid out there. It really should be your 00:08:38.110 --> 00:08:42.070 first stop. Okay, studentaid .gov. Got it. Looking 00:08:42.070 --> 00:08:44.330 ahead now, what's the bigger picture for student 00:08:44.330 --> 00:08:47.110 loan management? Well, Federal Student Aid, or 00:08:47.110 --> 00:08:50.240 FSA, is definitely focusing on outreach, trying 00:08:50.240 --> 00:08:52.440 to connect with defaulted borrowers proactively, 00:08:52.679 --> 00:08:55.340 nudge them towards repayment or enrolling in 00:08:55.340 --> 00:08:58.000 an IDR plan before garnishment kicks in. Along 00:08:58.000 --> 00:09:00.700 with simplifying those IDR processes we mentioned. 00:09:01.000 --> 00:09:02.840 Exactly. And there's also this broader theme 00:09:02.840 --> 00:09:04.940 of restoring accountability across the board. 00:09:05.059 --> 00:09:06.980 What does that involve? It means working with 00:09:06.980 --> 00:09:09.019 schools, loan servicers, government agencies, 00:09:09.139 --> 00:09:11.139 trying to make the whole system work better. 00:09:12.080 --> 00:09:14.379 Resuming the Treasury offset program is seen 00:09:14.379 --> 00:09:16.860 as part of that accountability push. Any other 00:09:16.860 --> 00:09:19.360 potential changes on the horizon? There are some 00:09:19.360 --> 00:09:21.700 proposed reforms, mainly from House Republicans, 00:09:22.000 --> 00:09:25.700 that might come into play after July 2026. The 00:09:25.700 --> 00:09:28.340 idea is to make colleges share some of the financial 00:09:28.340 --> 00:09:30.879 risk if their former students can't repay their 00:09:30.879 --> 00:09:33.399 federal loans. Interesting. Holding institutions 00:09:33.399 --> 00:09:36.039 more accountable for outcomes. That seems to 00:09:36.039 --> 00:09:38.940 be the idea, yeah. Linking funding or responsibility 00:09:38.940 --> 00:09:41.600 to things like program costs and graduate earnings. 00:09:41.940 --> 00:09:44.460 So it really feels like there's a definite shift. 00:09:45.039 --> 00:09:47.539 putting the responsibility for repayment more 00:09:47.539 --> 00:09:49.860 squarely back on the borrower. That's a very 00:09:49.860 --> 00:09:52.360 accurate takeaway. Secretary McMahon's messaging 00:09:52.360 --> 00:09:55.639 emphasizes individual responsibility over, say, 00:09:55.840 --> 00:09:59.039 broad government relief or taxpayer burden. It's 00:09:59.039 --> 00:10:01.000 a stricter approach than we've seen with the 00:10:01.000 --> 00:10:03.299 pauses in forgiveness talk. But relief programs 00:10:03.299 --> 00:10:06.340 still exist for certain situations. Yes, absolutely. 00:10:06.940 --> 00:10:10.080 For specific cases like fraud by the school or 00:10:10.080 --> 00:10:13.320 if a borrower becomes permanently disabled, those 00:10:13.320 --> 00:10:16.379 targeted relief programs remain. But for most 00:10:16.379 --> 00:10:19.240 people, the expectation is clear. You need to 00:10:19.240 --> 00:10:21.460 manage your debt as collections restart. OK, 00:10:21.539 --> 00:10:23.960 so let's sum this up. Student loan garnishment 00:10:23.960 --> 00:10:26.840 is set to resume in 2025 after this long pause. 00:10:27.200 --> 00:10:29.940 The consequences, as we've discussed, can be 00:10:29.940 --> 00:10:32.259 significant, especially if you're already struggling 00:10:32.259 --> 00:10:34.820 financially. But the key message really is that 00:10:34.820 --> 00:10:37.659 you aren't powerless. There are options. Right. 00:10:38.019 --> 00:10:40.500 Income -driven repayment plans, looking into 00:10:40.500 --> 00:10:42.879 loan rehabilitation if you're in default, just 00:10:42.879 --> 00:10:44.980 getting clear on the timeline. These are steps 00:10:44.980 --> 00:10:47.299 you can take right now. Absolutely. Don't wait 00:10:47.299 --> 00:10:49.500 for that garnishment notice to land. Be proactive. 00:10:49.820 --> 00:10:52.840 Go to studentaid .gov today. Find out exactly 00:10:52.840 --> 00:10:55.059 where you stand. Explore the options that fit 00:10:55.059 --> 00:10:57.679 your situation. Taking action now is crucial 00:10:57.679 --> 00:11:00.039 to avoid those serious consequences. It really 00:11:00.039 --> 00:11:02.139 is. It's about taking control of your financial 00:11:02.139 --> 00:11:05.470 future. So as you listen to this, think. What 00:11:05.470 --> 00:11:08.509 questions do you still have? And maybe more importantly, 00:11:08.690 --> 00:11:11.049 what's one concrete step you'll take, maybe even 00:11:11.049 --> 00:11:13.649 today, to get a better handle on your own student 00:11:13.649 --> 00:11:16.309 loan situation using resources like studentaid 00:11:16.309 --> 00:11:19.409 .gov? It's complex, yes, but taking that first 00:11:19.409 --> 00:11:20.990 step can make all the difference. Thanks for 00:11:20.990 --> 00:11:22.129 joining us for this deep dive.