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What does the resumption of student loan collections mean for borrowers?
The resumption of student loan collections means that borrowers will need to start making payments again after a lengthy pause that began in March 2020. This affects over 5.3 million borrowers currently in default, and many more who may struggle to resume payments. The Education Department's decision to report late payments to credit bureaus could lead to significant drops in credit scores for those who fall behind.
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How can borrowers prepare for the upcoming payments?
To prepare for the resumption of payments, borrowers should review their loan details, update their contact information with their loan servicer, and create a budget that includes their monthly payment. It's also advisable to explore repayment plans that may better suit their current financial situation, especially if they have experienced changes in income since the pandemic.
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What options are available for those in default?
Borrowers in default have several options to consider. They can rehabilitate their loans, which involves making a series of on-time payments to bring the loan back into good standing. Alternatively, they may consolidate their loans into a Direct Consolidation Loan, which can help manage payments. It's important for borrowers to communicate with their loan servicer to understand the best path forward.
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What changes have been made to student loan policies recently?
Recent changes to student loan policies include the decision to resume involuntary collections and the reporting of late payments to credit bureaus. This shift aims to ensure responsible management of the student loan program, as stated by Education Secretary Linda McMahon. Additionally, the grace period that allowed borrowers to pause payments has officially ended, prompting the need for borrowers to prepare for their financial obligations.
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What should borrowers do if they can't afford their payments?
If borrowers find themselves unable to afford their payments, they should reach out to their loan servicer immediately. Options such as income-driven repayment plans, deferment, or forbearance may be available to help manage their financial situation. It's crucial to act quickly to avoid further penalties or damage to credit scores.
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How will the resumption of collections affect credit scores?
The resumption of student loan collections will likely impact credit scores, especially for those who miss payments. The Education Department's decision to report late payments to credit bureaus means that borrowers who do not stay current on their loans could see significant drops in their credit scores. Maintaining timely payments is essential to protect credit health.