While still a few months off on the horizon, the date on which individuals with unpaid student loans may start seeing their paychecks and bank accounts garnished is approaching. And it’s important for everyone in the process to refresh themselves on where things stand and what is likely to happen in October when the one-year moratorium on collection activities for unpaid student loans ends.
A section chief at the Consumer Financial Protection Bureau was discussing the restarting of garnishments this week during a conference, according to a published report. In October, the Department of Education’s Fresh Start program is going to come to an end. Under the Fresh Start program, all delinquent and defaulted student loans are returned to current status, all negative credit reporting information has been removed from consumers’ credit reports, and all collection activity on unpaid student loans as been stopped.
But come October, all that will go away and consumers will once again face collection actions, including garnishments, this time from an entirely new set of collectors.
Given how some states handle garnishments, some creditors may attempt to bypass the prohibitions by obtaining court orders in other states where the particular employer may have an office or may operate, noted the CFPB’s William Hinkle during the discussion.
The biggest problem is communication between all parties, noted Nathan Wilner of the National Creditors Bar Association.
“Tell employees to call their creditor or their lawyer,” Wilner said. “The biggest problem is that there’s no communication. I understand that people can become deer in the headlights and it’s easier to ignore [the issue], but I have yet to see a situation where you can’t work out a payment arrangement with the creditor. They want voluntary payments; they don’t want to have to go through this process.”
