The New Defaulted Loans Support Center Is Here, But Strategy Still Matters
The Department of Education recently launched a new Defaulted Loans Support Center to make it easier for borrowers with defaulted federal student loans to take action.
On the surface, that sounds like a big change.
In reality, it does not change the most important part of getting out of default: choosing the right strategy and knowing how to carry it through.
And right now, that matters more than ever.
The latest federal student loan data shows that more than 9 million borrowers are currently in default, representing hundreds of billions of dollars in student loan debt. Another large group of borrowers is already seriously delinquent and moving closer to default.
I have worked in the student loan industry for about 15 years, and I have never seen the number of borrowers struggling at this level.
That is why I think borrowers need to understand the difference between having a new place to complete a process and actually having a clear plan for what to do.
A New Website Does Not Necessarily Mean a New Strategy
The Defaulted Loans Support Center gives borrowers a more direct way to begin resolving their default.
That is helpful.
But the options themselves have not suddenly become simple.
For example, a borrower choosing Loan Rehabilitation may be presented with a payment based on the standard rehabilitation calculation, which generally uses 15% of discretionary income.
What the borrower may not immediately realize is that this is not always the only payment available.
If that payment is too high, a borrower may be able to request a reasonable and affordable rehabilitation payment based on their actual income, household expenses and financial circumstances.
That payment can sometimes be significantly different.
This is exactly the type of distinction Student Debt Solutions (SDS) was built to identify.
When you completed your SDS analysis, the goal was never simply to tell you that rehabilitation exists. The goal was to look at your loans, your finances and your available options and help determine which
path makes the most sense for you.
Choosing the Strategy Is Only the First Step
This is another place where SDS continues to add value.
Getting the right plan identified is important. Getting that plan implemented correctly is just as important.
Depending on the strategy, borrowers may need to complete forms, provide income documentation, submit financial information, communicate with a servicer or collection agency, meet specific deadlines, make qualifying payments, and then follow up to make sure the account actually moves into the expected status.
A borrower can choose the right option and still run into problems if the paperwork is incomplete, the wrong documents are submitted, a required step is missed, or they simply do not know what should happen next.
SDS helps bridge that gap.
We help borrowers build the strategy, understand the required documentation, prepare for implementation, follow the proper procedures and know what to expect after the request is submitted.
That means the borrower is not left wondering:
Did I submit this correctly?
What happens next?
How long should this take?
What should I be watching for?
When do I need to follow up?
For many borrowers, that clarity is just as valuable as identifying the repayment option itself.
Consolidation Is Another Example
The new federal system also gives borrowers a path to consolidate their loans in order to resolve default.
For some borrowers, consolidation can absolutely make sense.
But I would never recommend that someone consolidate simply because it is the easiest button to click.
Since the federal repayment changes that took effect July 1, consolidation can also change which repayment plans you have access to afterward.
That means resolving your default through consolidation may solve one problem while also limiting some of your future repayment options.
There may also be situations where a borrower can use a three-payment arrangement before consolidation, rather than moving immediately into the standard consolidation pathway.
That is why I continue to tell borrowers:
Do not only ask, “How do I get out of default?”
Ask: “What will my loans look like after I get out of default?”
Use Student Debt Solutions Before You Take the Next Step
If you have used SDS before, this is where your analysis continues to matter.
Government websites are designed to help borrowers complete a process.
SDS is designed to help you understand which process makes the most sense, how to complete it correctly and what should happen next.
That can mean:
identifying whether rehabilitation or consolidation is the better path;
determining whether you may qualify for a lower reasonable-and-affordable rehabilitation payment;
understanding what repayment plans may be available after default resolution;
helping prepare the documents needed to move forward;
guiding you through the steps required to implement the strategy;
and helping you understand what to expect after your request is submitted.
The new Defaulted Loans Support Center is a useful tool.
But it does not replace individualized strategy, implementation support and clear next steps.
And with default affecting more borrowers than I have seen at any point in my career, I believe that kind of guidance is becoming more important, not less.
If your loans are currently in default, or your situation has changed since you last completed your SDS analysis, this is a good time to come back and review your options before choosing a path forward.
