Student Loan Update as Borrowers Face New Consequences This Month

Federal student loan borrowers who have missed payments or entered default may start to see negative impacts on their finances as the new year begins.

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Why It Matters

Government-mandated pauses on payments and collections have allowed those who are in default to avoid some of the harsher consequences of missed student loan payments. As the new year begins and these pauses end, borrowers could find themselves grappling with negative marks on their credit, among other financial hardships.

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The effects of debt on overall economic well-being of Americans play a role in how they may approach student loan repayment. Findings from the Education Data Initiative say that “51% of renting student borrowers have not bought a home due to student loan debt; among homeowners, 29% delayed purchasing a home due to student debt.” Other factors noted in this study found that Americans lowered their expectations when launching businesses or purchasing vehicles due to student loan debt.

What To Know

The Student Loan Borrower Assistance National Consumer Law Center says that “The government may be able to garnish your wages, seize your federal tax refunds, and even take a portion of your Social Security benefits to collect on your student loan debt.”

These are a few examples of what borrowers in default may face in the new year. Inflation, among the most prevalent concerns in today’s economy, is one extra factor borrowers may have to navigate in addition to restarting student loan payments and, potentially, catching up on former defaults.

What People Are Saying

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“The common thread, though I’ve never had a student loan myself, seems to be confusion. Many borrowers are unsure whether they qualify for loan forgiveness. Some are paying the bare minimum to reach the forgiveness stage, while others are expecting their balances to magically disappear,” Kevin Thompson, finance expert and founder/ CEO of 9i Capital Group, told Newsweek.

“This uncertainty has significant implications for their financial planning, particularly when it comes to major purchases like a home,” Thompson added.

What Happens Next

Borrowers with private student loans are ineligible for federal student loan forgiveness or other programs offered by the U.S. government, while people in default on private loans may not see much change in how lenders pursue repayment. Those with federal student loans who have benefited from government pauses may have to make adjustments early in 2025.