Payback time: Collections to start for defaulted student loans 

SOUTH BEND,Ind. -- It's payback time for millions of Americans with student loans; the Trump administration is re-starting collections after a pandemic pause.

Some 42.7 million Americans have outstanding federal student loans. The total amount owed ballooned to $1.7 trillion over the past 18 years, with federal student loan debt representing more than 92 percent of all student loan debt.

Collections are set to begin Monday, May 5, on everyone who's defaulted on their loans, which is those who haven't made a payment in 270 days. According to ABC News, that's about 5 million Americans. Only about a third of America's borrowers started making payments on their student loans.

If you haven't started making payments, now is the time to do so.

"We've been in limbo with where student loan payments stand," said Certified Financial Planner Mike Bernard.

This comes after the Biden Administration attempted to forgive student loans, something challenged repeatedly by the courts. And while the pandemic pause was lifted in 2023, collections hadn't restarted until now. The Trump Administration is consequently cracking down on student loan payments.

"This is impacting a lot of folks that have graduated in the past 10 years or so, who are making some of the biggest financial decisions of their life," Bernard said. "Where to live and buying a house; we know housing affordability or unaffordability is at stretching levels. We also have record-high credit card debt."

Those who have defaulted on their loans could see collections come down in the form of wage garnishing, where the government takes money directly out of your paycheck. It can also be done by taking from social security or tax returns.

Perhaps even more pressing for those people, it will impact their credit scores.

"If you're now forced to start making these payments and you haven't been, step one is figuring out where can it fit in the budget," Bernard said.

ABC57 sat down with Bernard, who says the best practice for borrowers is to go back to their budgets.

"You've got to put pen to paper, and you've got to pull out your bank statement, and you have to write out, 'Okay, yep, this is the mortgage every single month, this is the car payment every single month. These are all the monthly bills.' And see if the numbers fit. If the numbers don't fit, then it's, 'Okay, what tradeoffs can we make, what adjustments can I make,'" he said.

Roughly 4 million Americans are close to defaulting, so now is the time to start making payments to avoid any collections.

Amid all the confusion and changing policies in the federal government--- this comes as another financial blow for many.

"This is another thing that is causing people to be concerned about an upcoming recession in the economy," Bernard said.

It's unclear what this means for Biden's SAVE Plan, just another indicator of the uncertainty of this moment.

Bernard said anyone who is defaulted on their loans should immediately contact the Default Resolution Group.

Any and all borrowers should monitor updates and communications from studentaid.gov.