Student loan borrowers are currently navigating a severe credit damage crisis as the federal student loan repayment system struggles to stabilize. Following a prolonged period of relief during the pandemic, where payments and interest were paused, borrowers are now facing the consequences of missed payments as collections efforts ramp up. The Department of Education has reported that only 38% of borrowers are current on their loans, with millions falling into delinquency or default. A recent New York Fed report highlighted that the delinquency rate has surged to nearly 8%, resulting in significant drops in credit scores for many borrowers. The situation is exacerbated by the shutdown of the income-driven repayment application system, leaving borrowers without affordable repayment options. Advocacy groups are raising concerns about the punitive measures being imposed, such as tax refund seizures and wage garnishments. However, borrowers do have options to dispute inaccuracies, get current on payments, and explore pathways to cure defaults, though these processes can be complex and challenging.
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