According to reports from the Federal Reserve Bank of New York, between January and March of this year, overall debt for American households would have reached a historic figure of $18.8 trillion, which includes higher mortgage costs, credit card defaults, as well as defaults on car and student loans.

And while student loan debt, according to the FED report, indicated that it would have decreased slightly by $1.66 trillion, recent data from the Office of Federal Student Aid reported that defaults have increased by $4.2 million in recent months, reaching the historical figure of $9.52 million, which could put many borrowers in trouble.

In this regard, Stacey MacPhetres, senior director of educational financing at Bright Horizons, commented that “failure to pay a federal student loan can lead to wage garnishment, garnishment of tax refunds and have a negative impact on credit history for years to come,” she said.

Although during the Covid-19 pandemic the government decided to suspend payments on these loans to prevent them from falling into default, experts warn that those who do not act to pay them will have the consequences of the debt haunt them for years.

In this case, MacPhetres recommends first not ignoring notices about student loans, whether from collection agencies or the Department of Education; Second, you can set up a payment plan depending on the options presented.

Now, if there is an outright default, Tommy Lee, senior director of the credit rating company FICO, points out that it can affect the credit history by lowering the score. “Payment history is the most important factor in a FICO score, so for anyone who has late payments on student loans, that's the first thing you need to address,” he noted.

Finally, MacPhetres added that “the administration has also offered borrowers in repayment period a 1% reduction in the interest rate for direct debit payments, in the hope of incentivizing them to start the repayment process and with an automatic debit that will ensure timely payment,” he said.