Pay-Back Time for Students Who Dodge Loan Payments
BEWARE if you've been welching on government student-loan payments. Beginning in February, the Clinton administration will step up efforts to collect on defaulted student loans. Last year, millions of deadbeat students cost the United States government $2.4 billion.
Borrowers who do not agree to pay back their loans will now have their wages garnished by the Department of Education (DOE), a process that previously involved court approval, says Leo Kornfeld, senior adviser to education secretary Richard Riley for direct lending. The DOE now has the authority to contact employers directly to begin collecting wages. Identified defaulters will also become ineligible for further student aid and can have their default status reported to credit bureaus.
For the past eight years, the DOE located borrowers who failed to pay back student loans by cross-referencing their income-tax records. Money toward the defaulted loans was deducted from income-tax refunds. But for those borrows who didn't get refunds, the DOE was out of luck.
But a new facet to the collection program will enable the DOE to track down defaulters even if they are not due income-tax refunds. The DOE will notify by mail those who still owe money and give them an opportunity to restructure their payment plans. Under the new plan, the monthly amount due will be based on the former students' income and the size of the loan, ranging from 4 percent to 15 percent of the borrower's adjusted gross income. Borrowers can pay back as little as $15 per month.
Often, defaulted borrowers say they cannot afford to resume payments, Mr. Kornfeld says. Under the new system, payments can be stretched out to accommodate a lower monthly payment.