How to get real relief on federal student debt in default by Sept. 30 — and avoid scams

Within less than 24 hours last weekend, I received two similar texts about what to do if you're falling behind and failing to pay your student loan bills.

"Working America: Fed student aid in default? There is a fed government program that may help. Deadline is 9/30."

The two different phone numbers listed as the sender for the texts seemed dubious, like potential spam. Yet, the message mixed just enough reality into the text to get you thinking, maybe I should click on this link to save money. Best bet: As a practice, I'd advise against clicking on any links in an unexpected text.

Oddly enough, I contacted Working America, an AFL-CIO affiliate, directly via its website to find out what's up, and I discovered the texts weren't scams. I received this emailed response: "The messages are legitimate. In addition to text messages, we are conducting door-to-door organizing focused on economic issues in SE (southeast) Michigan."

The student loan texts are part of a larger effort to reach out to people across the country to help them navigate the economy, Jonathan Lipman, acting communications director for Working America, told me by phone Wednesday.

Information on a variety of topics — including student loans, summer lunch programs, childcare and how to get government help buying a home — can be found at WorkingAmerica.org/gethelp .

The texts sent in August highlight a real Sept. 30 deadline. But they certainly are raising a lot of eyebrows since they're being sent to a wide range of people, including some people in their 80s and some who never took out student loans.

I feel blessed knowing that my working class parents, who lived a modest life, were able to pick up the entire bill for my college education many years ago. Tuition was far more affordable, too, when I attended Michigan State University in the late 1970s and early 1980s. On my first job as a journalist out of college, I was fortunate enough to work for an employer who covered most of the bill for graduate school when I attended night and weekend classes in my 20s.

Naturally, since I never had to take out a student loan, I'd imagine the text was yet another scam. When I discovered the text was legitimate, I did click on the link and it took me to workingamerica.org/fresh-start where I saw details for "How to get back on track with student loans."

Even so, borrowers need to be on high alert for many student loan forgiveness and debt relief scams. A great deal of confusion relating to student loan repayments has built up after President Joe Biden's plan to offer student loan forgiveness to millions of borrowers hit several roadblocks in the courts. Vulnerable borrowers could fall into traps.

It was just roughly a year ago, back in October 2023, when most borrowers had to resume making federal student loan payments once we saw an end to a pandemic-related pause that ultimately lasted more than three years.

But some special programs offered another year of extended, but temporary, protections through Sept. 30. For the past year, for example, many with federal student loan debt did not need to worry about seeing their wages garnished or tax refunds held back if they didn't pay their federal student loan bills. But that relief ends in roughly a month.

Many borrowers are paying their federal student loan bills since the pandemic-pause ended. But a large chunk aren't paying on time.

About half of borrowers in repayment — some 17.8 million people with $706 billion in loans — were current on their federal student loan payments as of Jan. 31, according to a new report by the U.S. Government Accountability Office.

But nearly 30% of borrowers — or 9.7 million people — were past due on their payments. The Department of Education typically would report borrowers as delinquent to credit reporting agencies when they become 90 days past due on their loans. But the GAO report noted that the agency is forgoing this practice for the first 12 months of repayment resumption — or from October 2023 through September.

As of Jan. 31, the GAO report noted, the Education Department said that nearly 6.7 million borrowers had been shielded from negative credit reporting since monthly payments resumed last October.

What to do if you're facing financial difficulties

If you're facing financial distress, it's not wise to simply expect that you can continue not making payments without facing serious consequences as early as this fall.

Two temporary programs that protected financially vulnerable borrowers will end Sept. 30.

Under one initiative often referred to as an "on-ramp" program, no action was taken that could result in declaring a federal student loan to be in default or otherwise hurt a borrower's credit. The program was put into place as the pandemic-driven payment pause came to a halt last year.

The theory was that struggling borrowers who were long out of practice making student loan payments could face a higher likelihood of defaulting shortly after the pause ended.

A temporary "on-ramp" was built, if you will, to give those borrowers more wiggle room for another year and prevent defaults as repayments resumed.

The program blocked negative credit reporting for borrowers who didn't make payments on their federal student loans during this limited time by placing them into retroactive forbearances once a quarter for up to a year, said Mark Kantrowitz, a student loan expert and author. Interest continued to accrue during the forbearance.

But borrowers now taking advantage of the "on-ramp" program, he said, will need to start making payments on their federal student loans beginning Oct. 1.

"They could also apply for an economic hardship deferment, unemployment deferment or general forbearance, if applicable, but it is better for them to make payments if they can," Kantrowitz said.

Or if the borrower's income is low compared with their student loan debt, Kantrowitz said, they should consider an income-driven repayment plan, which bases the monthly payment on a percentage of their discretionary income.

Getting a 'Fresh Start' remains an option now

Another effort called "Fresh Start" offered special benefits to borrowers who were already in default before the pandemic-driven pause, but that program ends Sept. 30, too.

The "Fresh Start" program automatically gave some benefits, such as restoring access to federal student loans and grants. But the borrower needed to take action and sign up for the initiative to stay out of default. Information on " Fresh Start" is at StudentAid.gov .

"Fresh Start" applies to borrowers who had missed payments for at least 270 days — or those borrowers in default status.

At the end of 2023, about 300,000 borrowers were enrolled in "Fresh Start," while some 6.2 million had a defaulted federally managed loan around the same time, according to a report issued by The Pew Charitable Trusts.

More borrowers would be eligible to enroll but they need to move quickly. Borrowers might not realize that they can still stay out of default by signing up for the "Fresh Start" initiative by Sept. 30. You can go to myeddebt.ed.gov or call 800-621-3115 to enroll in "Fresh Start."

Brian Denten, an officer with The Pew Charitable Trusts' student loan initiative, said many student loan borrowers need to take time to understand how they might be able to take some positive, real steps before Sept. 30, if needed.

"Some of these consequences that have always existed, but have been on pause, are going to start kicking in again," Denten said.

Without taking action soon, Denten noted, many student loan borrowers in default face declining credit scores, wage garnishment or seizure of tax refunds and Social Security benefits when student loan collection activity resumes later in 2024.

Those who don’t sign up for "Fresh Start" before Sept. 30 risk missing out on a much-simplified path for staying out of default, protecting their credit, avoiding seeing their wages garnished and seeing the federal government take their valuable tax refunds to cover what they owe.

Borrowers in default can get back in good standing and improve their credit by enrolling in "Fresh Start" but the borrower must then be sure to set up a plan to make on-time payments. Those who enroll will become eligible to sign up for a more affordable income-driven repayment plan. (Key caveat: Someone who enrolled in "Fresh Start" but then did not make on-time payments would not improve their credit score.)

Kantrowitz said the "Fresh Start" initiative can clear the default if you sign up before the Sept. 30 deadline. "It takes a few weeks for their enrollment in 'Fresh Start' to be processed, so if they are interested, they need to apply for it now, without delay," Kantrowitz said.

"Fresh Start," Kantrowitz said, let borrowers get out of default, kind of like rehabilitating the loans. It also stops collection activity, restores eligibility for federal student aid and clears the default from their credit history. But borrowers must then start making payments on their federal student loans, typically through an income-driven repayment plan.

It isn't as simple as clicking on a link sent to you by scammers. But student loan borrowers who face serious difficulties do have a few more weeks here to try to figure things out before Sept. 30.

More: Why that deal on a college textbook might flunk out, plus more back-to-school scams

More: A new email about proposed federal student loan forgiveness heads to millions of borrowers

Avoiding student loan scams as real changes hit

Student loan borrowers are at risk of falling for scams because they may be overwhelmed by their bills and the steps they might need to take to solve their problems and take advantage of some remaining options.

"Dishonest people, fraudsters and cyber criminals have redoubled their efforts — bombarding student loan borrowers with unsolicited texts, emails and calls," according to an alert earlier in 2024 by the U.S. Department of Education Office of Inspector General.

They make all sorts of promises with these pitches — which include pop-up ads on social media — to eliminate your student loan debt or help you get loan forgiveness. The promises come with a steep price: You're handing over money or personal information, or both.

Don't click on links, pay fees or hand over FSA ID

Some student loan debt relief companies will hide behind texts, making themselves appear to be connected with some federal program when they are not. Scammers often charge an upfront fee for services that you'd typically get for free. A key point: It is illegal for someone to charge you before they help reduce or get rid of your student loan debt.

The Federal Trade Commission notes in an alert that scammers will request your FSA ID login information. Another definite no-no. "If a scammer gets your FSA ID, they could cut you off from your loan servicer — or even steal your identity," the FTC notes.

Contact your loan servicer and Federal Student Aid at StudentAid.gov/feedback-center to report if you've fallen victim to a scam or believe your personal information was stolen as part of a scam. You can also contact the U.S. Department of Education Office of Inspector General Hotline at oig.ed.gov to report problems.

Contact personal finance columnist Susan Tompor: stompor@freepress.com . Follow her on X (Twitter) @ tompor .

This article originally appeared on Detroit Free Press: How to get real relief on federal student debt in default by Sept. 30 — and avoid scams