U.S. Stepping Up Enforcement on Delinquent Student Loans

Student loan rates will decrease by more than half a percentage point starting July 1. (Dreamstime/TNS)Read moreHandout / MCT

by Alex Tanzi, Bloomberg

Published May 12, 2019, 9:22 a.m. ET

(Bloomberg) — Your rich Uncle Sam is calling in his chips.

The U.S. government stepped up collections on delinquent student debt to $2.9 billion last year — or an average of $1,000 from 2.9 million former students and their cosigners, according to the Treasury Department. And the trend continues. In the first six months of fiscal 2019, which started Oct. 1, collections totaled $3.3 billion.

Graduating students are usually granted a six-month grace period before making loan payments. Hypothetically, a member of the Class of 2019 with $50,000 in loans would owe about $550 per month over the next decade — or $20 daily. (Assuming 6% annual interest and a 10-year term.)

Key Insights

The Treasury Department may withhold federal income tax refunds, Social Security payments (including Social Security disability benefits) and moreState tax refunds may be also withheld and applied toward repayment of a loanState drivers licenses or other state-issued licenses may be confiscatedA borrower’s employer may be ordered to withhold up to 15% of disposable pay to collect defaulted debt without a court hearingWithholding “garnishment” continues until a defaulted loan is paid in full or removed from defaultCosts associated with collecting defaulted federal student loans, including the cost of placing a loan with a private collection agency, can also be added to the balance dueCollection costs such as processing fees and costs associated with potential civil litigation can also be added