Day of reckoning for student loan defaulters as pre-pandemic collection methods set to kick in

BOSTON — In a couple of weeks, Boston University Senior Zach Kautter begins his acting career — with a strong motivation to pursue auditions.

“I’m going to come out with a lot of debt,” Kautter said. “I would estimate all said and done, it’s gonna be about $175,000, which is a lot. Hopefully, I’ll be able to figure it out. But it’s been such a privilege to be here that I think in the long run it will be worth it. Of course, I would love for it to disappear magically or something like that.”

That is, indeed, wishful thinking. While Kautter likely has a six-month grace period to begin paying back his loans, the government is focused on the millions of federal student loan borrowers who haven’t paid anything back in a year. Monday, the Department of Education resumed its pre-pandemic methods of collecting student loan debt — including withholding of tax refunds and even garnishment of wages.

“During the pandemic, federal student loan payments were paused and that pause was extended several times,” said Brian Walsh, certified financial planner and Head of Advice and Planning at SoFi.

That changed in late 2023, when the government began requiring federal student loan recipients to resume regular payments. At least 5 million did not.

“Now we’re pretty much at the 2020 treatment when it comes to federal student loans,” Walsh said. “Ther government will start giving notice before garnishing wages... you’re in default, we’re proceeding with involuntary collections — but here are your options.”

Walsh said it’s important for those who get such notices to not ignore them because the number one driver of credit score is payment history. He said options for repayment include income-driven programs, which cap payments to a set percentage of income. Borrowers may also be able to extend repayment periods from the standard ten to 20 years or longer. Obviously, total interest paid goes up with both these options.

And finally, there is the option to refinance the student loan through a private lender. (SoFi offers an initial-interest free program called Smart Start.)

For those heading off to college, Walsh recommends taking a more strategic approach to cost.

“Based on what my major is, what school I’m going to, here’s my expected earnings,” he said, “And really using that as a guiding rail to say, here’s what I’m willing to borrow.”

Other options might include starting at a two-year school — or foregoing living on campus.

Walsh said that if enough families make strategic decisions before committing to a college, it could help drive costs down.

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