Ed. Dept. Issues Guidance About Post-Moratorium Collection Efforts

Individuals with student loans will be able to avoid facing collection attempts for one year once the moratorium on making student loan payments ends, according to guidance released by the Department of Education’s Federal Student Aid office last week.

Back in April, the Education Department announced the creation of a “Fresh Start” program which would eliminate any delinquency or defaults that were in place at the time the moratorium on payments was put in place in March 2020 because of the COVID-19 pandemic.

About 7.5 million individuals were in default on their student loan payments when the moratorium was enacted, and each of those, as well as anyone who was behind on their payments, will be back to even once the moratorium is ended. The Biden Administration recently extended the moratorium through June 30, 2023 or when the legal challenges attempting to block a program that will wipe out as much as $20,000 in unpaid student loan debt for every borrower making less than $125,000 per year are resolved.

Entities collecting on unpaid student loans will be required to suspend collection efforts toward individuals not making payments for one year after the moratorium ends, while also not furnishing information about unpaid loans to the credit reporting agencies.

When communicating with borrowers, guaranty agencies must also obtain consent under the Telephone Consumer Protection Act, obtain information regarding income-driven repayment plans, and find out if individuals filed for bankruptcy protection.

Guaranty agencies will be able to counsel individuals about the terms of their loans and discuss repayment plans that may be available, but demands for payment will not be allowed.

“Today, more than seven and a half million borrowers have a loan in default,” Under Secretary of Education James Kvaal said during a student aid conference last week. That’s about one in six student loan borrowers. Nothing good comes out of loan default. It drives borrowers already facing financial hardships into an even deeper hole.”

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