The borrower had needed to make monthly payments on those loans but had stopped because of some misconceptions about what was and what wasn’t covered under COVID-19 debt relief.
The borrower didn’t realize that the temporary 0 percent rates and automatic pause in payments applied only to specific federal student loan debt, not all student loans.
About 9 million borrowers — those with private student loans and those with most Perkins loans and Federal Family Education Loans that are not owned by the federal government — are not receiving automatic relief, according to the Student Borrower Protection Center, a nonprofit advocacy group.
“With private student loans, a borrower has to request forbearance. It is not automatic. Even the special 90-day COVID-19 forbearance has to be requested,” said Mark Kantrowitz, publisher and vice president of research for Savingforcollege.com.
And many experts recommend that you contact your loan servicer, if you’re having trouble making your payments or if you’re unclear about whether your loans are covered under the federal CARES Act or other programs.
Mishaps can trigger trouble down the road — and servicers will try to get their money. For example, a private student loan creditor is entitled to 100 percent of your state tax refund, with court approval.
For private student loans, tax refund garnishment is only available at the state level and does not apply to federal tax refunds.
“While they can’t seize your federal refund, they can take action to collect quicker than federal student loan servicers,” Stoddard said.
“Federal servicers are unable to take collection action until a loan is 270 days past due, private servicers can take action as soon as you’re late once.”
The private servicer can go to court and sue to garnish wages, seize money in your bank account and take your state tax refund, according to student loan experts.
“Lawsuits are the main collection tool for delinquent private student loans,” Stoddard said.
If you have federal student loans in default, your federal income tax refund can be offset to cover the debt. (For information about offsets, you can call the U.S. Treasury offset program call center at 800-304-3107.)
Having delinquent student debt or debt in default will damage your credit score — and drive up the interest rates you’d pay if you’re taking out a car loan or a mortgage.