Welcome back to the Net Worth Podcast.
Speaker 1: This week we are diving into how the resumed federal student loan collections can impact your net worth and more importantly, what you can do about it.
Speaker 2: Check out the full edition on our website wearenoyack.com.
Speaker 1: So we’ve been talking about this for a while.
Speaker 2: It feels like ages almost, but now it’s officially happening.
Speaker 1: Federal student loan collections are back online.
Speaker 2: Yep.
Speaker 1: That five year pause is over.
Speaker 2: And this isn’t just some, you know, bureaucratic shift.
Speaker 1: We’re talking about something that can directly hit your personal net worth.
Speaker 2: It’s a big topic and we cover it thoroughly in this edition of Noyack Wealth Weekly.
Speaker 1: Absolutely.
Speaker 2: May 5th, 2025.
Speaker 1: That was the date collections officially restarted.
Speaker 2: Look, this isn’t a minor thing.
Speaker 1: We’re talking over five million borrowers affected right off the bat.
Speaker 2: Five million.
Speaker 1: Wow.
Speaker 2: And if you zoom in on, millennials, they’re holding almost five hundred billion dollars in student debt.
Speaker 1: The average per borrower.
Speaker 2: Yeah.
Speaker 1: Around $33,000.
Speaker 2: And for anyone who is already in default.
Speaker 1: Well, the consequences are immediate.
Speaker 2: Think wage garnishments, tax refunds getting seized, even Social Security offsets.
Speaker 1: It really shows how fast policy turns into personal finance reality.
Speaker 2: It really does paint a stark picture and it underscores why we’re digging into this today.
Speaker 1: It’s so important to see this not just as, oh, I have to make payments again, but as a real challenge to your financial future, your whole net worth.
Speaker 2: Exactly.
Speaker 1: It affects everything saving, investing, long term wealth.
Speaker 2: OK, let’s unpack this a bit more based on this edition.
Speaker 1: What are the specific ways these resumed collections can actually drain someone’s net worth?
Speaker 2: What’s the first big hit?
Speaker 1: Well, the most immediate one and honestly probably the most painful is direct paycheck reductions.
Speaker 2: If you’re in default, the government can legally take up to 15 percent of your paycheck.
Speaker 1: Fifteen percent.
Speaker 2: Yeah.
Speaker 1: And it’s not just the number itself.
Speaker 2: It’s how quickly that 15 percent cut can mess up even a carefully planned budget, that’s money just gone.
Speaker 1: Money that you thought was going towards investments or maybe paying down credit cards or building that emergency fund.
Speaker 2: It’s like a direct drain on your ability to build wealth month after month.
Speaker 1: a 15 % hit right off the top.
Speaker 2: That sounds like it could really destabilize things fast.
Speaker 1: What happens next?
Speaker 2: What’s the sort of domino effect?
Speaker 1: Well, when your take-home pay suddenly shrinks like that, you get pushed into tough choices.
Speaker 2: This often leads to what the piece calls Forced asset liquidation.
Speaker 1: Forced liquidation.
Speaker 2: Meaning selling stuff you own.
Speaker 1: Exactly.
Speaker 2: You might have to sell investments you’ve been growing, maybe stocks or mutual funds.
Speaker 1: Or worse, you might have to raid your emergency savings just to cover the basics, like rent or groceries.
Speaker 2: Ouch.
Speaker 1: So it’s not just slowing down your wealth building.
Speaker 2: It can actually put you backwards, unwinding the progress you’ve already made.
Speaker 1: It forces you into a financial retreat you didn’t plan for.
Speaker 2: So you’re losing income and potentially losing assets you already built up.
Speaker 1: And we all know how important credit is.
Speaker 2: How does all this affect your credit score?
Speaker 1: That’s a huge part of net worth too.
Speaker 2: Oh, definitely.
Speaker 1: That brings us straight to the third major threat, credit damage and more expensive borrowing.
Speaker 2: Even just missing payments before you hit default starts hurting your credit score.
Speaker 1: Once you’re officially in default.
Speaker 2: That damage gets much deeper, much more serious.
Speaker 1: And a lower credit score means higher interest rates on everything.
Speaker 2: Mortgages, car loans.
Speaker 1: Mortgages, car loans, credit cards, you name it.
Speaker 2: So you end up paying way more in interest over the years.
Speaker 1: That basically restricts your access to good financing options.
Speaker 2: It’s like this hidden tax that makes every future financial step, every wealth building move more expensive.
Speaker 1: That sounds like a really tough cycle to escape.
Speaker 2: You know, the impact isn’t always just on the individual borrower, is it?
Speaker 1: This stuff ripples outwards.
Speaker 2: It absolutely does.
Speaker 1: This edition talks about something called intergenerational net worth friction.
Speaker 2: Think about it.
Speaker 1: Millennials, Gen Z, they hold a lot of this debt.
Speaker 2: This financial instability doesn’t just hurt their ability to buy a house or save for retirement.
Speaker 1: It actually delays wealth transfer across generations.
Speaker 2: It impacts their ability to, say, help their own kids down the line or start a business or even contribute to their communities in the ways they might want to.
Speaker 1: It’s a broader societal issue that starts with individual financial stress.
Speaker 2: really puts it in perspective.
Speaker 1: So thinking about all these potential hits, what does this actually mean for your financial plan?
Speaker 2: Listening right now, the stakes are clearly high.
Speaker 1: But the good news is there are things you can do.
Speaker 2: This isn’t a hopeless situation.
Speaker 1: Not at all.
Speaker 2: Which brings us to the really crucial part, the comeback plan.
Speaker 1: How do you turn this around?
Speaker 2: I’m really interested in the proactive steps outlined here.
Speaker 1: It’s about taking this potential crisis and maybe even turning it into a moment to build wealth, right?
Speaker 2: That’s the goal.
Speaker 1: And step one is super straightforward, but absolutely critical.
Speaker 2: Check your loan status today.
Speaker 1: Like right now, if you can.
Speaker 2: Where?
Speaker 1: Log in to studentaid.gov.
Speaker 2: That’s the official source you need to know.
Speaker 1: Are you just delinquent, meaning you’ve missed a payment or two?
Speaker 2: Or are you actually in default, which typically means no payments for about 270 days?
Speaker 1: Got it.
Speaker 2: Delinquent versus default.
Speaker 1: Exactly.
Speaker 2: And keep an eye out for any collection notices, email, snail mail, whatever.
Speaker 1: Knowing your status is key because default is what triggers the serious collection actions.
Speaker 2: If you do nothing, that’s when the wage garnishments and tax refund seizures can start.
Speaker 1: Just checking is the first move to prevent all that pain.
Speaker 2: Okay, so knowledge is power.
Speaker 1: First step, check studentag.gov.
Speaker 2: What if someone checks and finds out, uh-oh, they are in default?
Speaker 1: What are the options then?
Speaker 2: Right, so that’s step two.
Speaker 1: Choose your way out of default.
Speaker 2: And the good news is…
Speaker 1: You do have options.
Speaker 2: are basically three main paths.
Speaker 1: First is loan rehabilitation.
Speaker 2: This involves making nine monthly payments on time within a 10 month window.
Speaker 1: And these payments can be really affordable, sometimes as low as five or 25 bucks a month based on your income.
Speaker 2: Nine payments.
Speaker 1: What’s the big benefit there?
Speaker 2: The huge benefit is that rehabilitation completely removes the record of default from your credit report.
Speaker 1: That can give your credit score a really significant boost.
Speaker 2: Option two is loan consolidation.
Speaker 1: Think of it like rolling all your defaulted federal loans into one brand new direct consolidation loan.
Speaker 2: It’s kind of a reset.
Speaker 1: a reset.
Speaker 2: What does that get you?
Speaker 1: The main advantage here is speed.
Speaker 2: Consolidation gets you out of default much faster, usually in just a couple of months.
Speaker 1: And crucially, it immediately restores your eligibility for federal benefits.
Speaker 2: Things like income driven repayment plans, public service loan forgiveness, PSLF, and options like deferment or forbearance if you hit another rough patch.
Speaker 1: So faster access to help, basically.
Speaker 2: Is there a downside?
Speaker 1: Well, the default itself technically stays on your credit history, although it will be marked as paid through consolidation.
Speaker 2: So rehab is better for pure credit score repair, while consolidation is faster for regaining access to payment plans and protections.
Speaker 1: And the third option, full repayment or settlement.
Speaker 2: This is pretty straightforward.
Speaker 1: You either pay the entire defaulted balance off, or you negotiate with the Department of Education to pay a lump sum amount to settle the debt.
Speaker 2: Who is that best for?
Speaker 1: This really only makes sense if you have significant cash available.
Speaker 2: Maybe you’re a high earner or you got an inheritance or some other windfall.
Speaker 1: It’s the quickest way to be done with it, but obviously requires substantial funds.
Speaker 2: OK.
Speaker 1: So what’s really interesting, as this edition points out, is that you have choices depending on what matters most to you right now.
Speaker 2: Fixing your credit score long term.
Speaker 1: getting quick access to manageable payments or just getting it resolved completely if you have the means.
Speaker 2: That’s a great breakdown.
Speaker 1: Choices are good.
Speaker 2: But what if someone’s already like in the thick of it?
Speaker 1: Maybe wages are already being garnished.
Speaker 2: What are the immediate actions then?
Speaker 1: That’s step three.
Speaker 2: Take back control.
Speaker 1: If you’re in default, you got to be proactive right now.
Speaker 2: First move.
Speaker 1: Call your loan servicer.
Speaker 2: Don’t wait.
Speaker 1: They can walk you through starting rehabilitation or consolidation.
Speaker 2: OK, call the service.
Speaker 1: Get that payment plan set up ASAP.
Speaker 2: And if your wages are already being garnished, you have the right to request a hardship hearing.
Speaker 1: That might allow you to reduce or temporarily stop the garnishment based on your financial situation.
Speaker 2: Good to know.
Speaker 1: And then the most important part, once you’re on a path out of default, make every single payment on time.
Speaker 2: Consistency is key to getting back your benefits and rebuilding that financial stability.
Speaker 1: It feels overwhelming, maybe, but this is genuinely a fixable problem.
Speaker 2: That’s really reassuring.
Speaker 1: Default doesn’t have to be the end of the story.
Speaker 2: So what about listeners who aren’t in default?
Speaker 1: How do they stay clear of this mess?
Speaker 2: Excellent question.
Speaker 1: That brings us neatly to step four.
Speaker 2: Stay current, stay smart.
Speaker 1: If you’re not in default, fantastic.
Speaker 2: Let’s keep it that way.
Speaker 1: First big move.
Speaker 2: Enroll in an income driven repayment plan or IDR.
Speaker 1: IDR plans.
Speaker 2: Those adjust your payments based on income, right?
Speaker 1: Exactly.
Speaker 2: Your payment could even be zero dollars per month if your income is very low, but it still counts as an on time payment.
Speaker 1: keeping you out of delinquency in default.
Speaker 2: It’s a safety net.
Speaker 1: Second, set up auto pay.
Speaker 2: Seriously, life gets busy, it’s easy to miss a due date.
Speaker 1: Auto pay takes that risk off the table.
Speaker 2: Then think about how you want to pay down the debt if you can afford more than the minimum.
Speaker 1: This edition mentions two popular methods, Avalanche and Snowball.
Speaker 2: Ah, yes, Avalanche versus Snowball.
Speaker 1: Remind us quickly.
Speaker 2: Sure.
Speaker 1: Avalanche means you target the loan with the highest interest rate first.
Speaker 2: while making minimum payments on the others.
Speaker 1: Mathematically, this saves you the most money on interest over time.
Speaker 2: Snowball means you target the loan with the smallest balance first.
Speaker 1: You get quick wins, which can be really motivating, even if it costs a bit more in interest long-term.
Speaker 2: Pick the one that fits your style.
Speaker 1: Got it.
Speaker 2: What else?
Speaker 1: Definitely utilize WorkBerks.
Speaker 2: Check with your HR department.
Speaker 1: Through 2025, employers can contribute up to $5,250 per year towards your student loans, tax-free for both you and them.
Speaker 2: That’s potentially free money.
Speaker 1: Don’t leave it on the table if it’s offered.
Speaker 2: Huge potential benefit there.
Speaker 1: And finally, track your credit.
Speaker 2: Use free tools like Credit Karma, Credit Sesame, or maybe your bank or credit card offers free monitoring.
Speaker 1: Keep an eye on your score and report any errors immediately.
Speaker 2: All these steps, IDR, auto pay, smart payoff, work perks, credit monitoring, they protect your cash flow, maintain stability, and that stability is the foundation for actually building net worth.
Speaker 1: It really does all connect.
Speaker 2: Which leads perfectly into the final step, which honestly feels like the most powerful one.
Speaker 1: Make student debt part of your wealth plan.
Speaker 2: This flips the whole script, doesn’t it?
Speaker 1: It’s not just damage control.
Speaker 2: It’s about strategy.
Speaker 1: Absolutely.
Speaker 2: This is where you shift from defense to offense, financially speaking.
Speaker 1: Managing your student debt smartly can actually unlock wealth building opportunities.
Speaker 2: I hope so.
Speaker 1: Well, think about it.
Speaker 2: Lowering your monthly payments with something like an IDR plan frees up cash flow, right?
Speaker 1: That extra money can now go into your 401k, an IRA, a brokerage account, or just building a solid emergency fund.
Speaker 2: Getting out of default and improving your credit score, as we discussed, lowers your borrowing costs for everything else, a future mortgage, a car loan.
Speaker 1: That saves you potentially thousands over time, money that can be invested instead.
Speaker 2: Right, lower interest payments means more money for you.
Speaker 1: Exactly.
Speaker 2: And starting to invest, even if it’s just small amounts freed up from debt management, allows compounding to work its magic over the long term.
Speaker 1: This edition even points out that once your debt is manageable, you can start exploring other types of investments to grow your net worth, like maybe alternative assets.
Speaker 2: It mentions NOYACKs N REIT 2 Fund as an example to diversify beyond just stocks and bonds.
Speaker 1: So this really raises a powerful question for everyone listening.
Speaker 2: How can you take this challenge, this resumption of payments, and turn it into a pivotal moment for your network?
Speaker 1: It sounds like the key is taking control, being strategic, and seeing the connection between managing this debt and achieving your bigger financial goals.
Speaker 2: Okay, let’s tie this all together.
Speaker 1: The core message from this edition seems crystal clear.
Speaker 2: Yes, the return of student loan collections can definitely disrupt your net worth.
Speaker 1: It’s a real headwind.
Speaker 2: It is.
Speaker 1: But, and this is the important part, taking action now can stop that negative momentum, whether it’s getting into rehabilitation or consolidation if you’re in default.
Speaker 2: or being proactive with IDR plans and employer benefits, if you’re current, you can protect your financial future.
Speaker 1: Exactly.
Speaker 2: And maybe here’s a final thought to chew on.
Speaker 1: Millennials, Gen Z, they didn’t cause the student debt crisis.
Speaker 2: But they absolutely have the power to control their response to it.
Speaker 1: This comeback plan we’ve talked through, it’s designed to give you that control.
Speaker 2: The tools are there.
Speaker 1: The options exist.
Speaker 2: It’s about taking that first step.
Speaker 1: Couldn’t agree more.
Speaker 2: So the immediate action item for you listening.
Speaker 1: It’s simple.
Speaker 2: Log in to studentaid.gov.
Speaker 1: Like today.
Speaker 2: Check your loan status.
Speaker 1: Find out where you stand.
Speaker 2: If you discover you’re in default, don’t panic, but don’t delay.
Speaker 1: Start the rehabilitation or consolidation process immediately.
Speaker 2: Call your servicer.
Speaker 1: If you’re current, great.
Speaker 2: Make sure you’re enrolled in the best income-driven repayment plan for your situation.
Speaker 1: Set up that auto pay, and definitely investigate those employer benefits.
Speaker 2: Ask HR.
Speaker 1: And please, if this conversation made you think of a friend or family member who might be dealing with this, share this information.
Speaker 2: Send them a link, have a conversation.
Speaker 1: It could make a huge difference.
Speaker 2: And remember, you’re not navigating this alone.
Speaker 1: There are resources.
Speaker 2: The Federal Student Aid website itself is full of information.
Speaker 1: There’s also the Federal Student Aid app, which is handy for checking things on the go.
Speaker 2: And organizations like the Student Debt Crisis Center offer free expert help if you need more personalized guidance.
Speaker 1: Don’t hesitate to reach out.
Speaker 2: Remember to subscribe to Noyack Wealth Weekly on our website, wearenoyack.com, to read the article behind today’s conversation and to get our weekly newsletter straight in your inbox.
