Student loan protections ending, subject to credit reporting | NewsNation Now

A new warning signs for our economy as more Americans fall deeper into debt. Credit card defaults are skyrocketing, reportedly jumping to the highest level since the Great Recession. Lenders writing off more than 46 billion dollars in credit card loans in the first nine months of this year. That is an increase of more than 50 percent from 2023. And those are not the only debts worrying Americans. As we're saying goodbye to 2024 and farewell to the last COVID era protections for student loan borrowers. So that could impact millions of Americans. The current federal loan debt sits at about 1.6 trillion dollars. That debt is spread out across nearly 43 million federal student loan borrowers and close to 7 million Americans are in default. And those defaulted federal loans could be hitting millions of credit reports in the next year, tanking credit scores that could have major financial consequences for years to come. So let's bring in Betsy Mayotte, the president and founder of the Institute of Student Loan Advisors, who has helped thousands navigate the student loan process. Betsy, thank you so much for your time on this. So we have seen these numerous extensions against penalties for these student loan borrowers, but why do people really need to pay attention now? Yeah, so it's been almost five years since borrowers with federal student loans that were in default have had really no collection activity or consequences to those defaulted loans. But that is ending as soon as tomorrow for these people. And that means affecting their credit score, administrative wage garnishment, having their tax refund garnished, even their Social Security potentially garnished. So what could some of these people see when it comes to consequences if they do go into default? Because I think, you know, people hear kind of some of the things you said and they think, oh, well, I have time or it's not really going to happen to me. Yeah, well, as we're not quite sure how quickly the Trump administration will start active collections and credit reporting on defaulted student loans. But, you know, the Department of Education up to now has said it could be as early as January. That means adding up to 24 percent or 25 percent in collection costs to the loans, garnishing up to 15 percent of the borrower's gross wages. As I mentioned, garnishing Social Security and garnishing a tax refund. So what are some of the options for these borrowers who want to avoid being dinged? Is it a matter of, you know, paying what you can, paying something, trying to call up the loan company and figure out some type of resolution? Thankfully for federal student loans, there are options for defaulted borrowers to get out of default and even remove the default line from their credit report in some cases. The two primary ways are a process called loan rehabilitation, where you make nine consecutive on-time payments of an amount based on your income and then your loan's back in good standing. You're eligible for lower payment options, such as income-based repayment. And they remove the default line from your credit report like it was never there. A quicker way is consolidation. Consolidation is you just consolidate your defaulted loans. That can take between 60 and 90 days on average. And then your loan is again back in good standing. All right, so Betsy, how often do borrowers actually face litigation, which is an option? How often are they actually, though, facing litigation when it comes to having loans in default? Yeah, so I've been working in student loans since the earth cooled. I will say it is a lot more common for a private student loan lender to litigate against a borrower who hasn't paid than it is for the federal government to do so. And that's because the federal government has these tools like wage garnishment and tax refund offset and social security offset. They will sue, but it's not as common as it is for private student loans. Okay, but they will make sure that they're going to get their money somehow here. All right, last question for you, Betsy. Do you think there is any possibility, again, you know, you said it's been almost five years, there have been these pauses. Do you think there's any possibility that they could be extended once again? I doubt it. I mean, nothing's impossible these days, right? But if I was someone with a defaulted student loan, I would absolutely not be putting my eggs in that basket. All right, make those payments or call them up, figure out something. Betsy Mayotte, thank you so much for your time. Happy New Year to you. You too.