2 million student loan borrowers at risk of garnished wages in July
Nearly two million student loan borrowers are at risk of having their wages garnished next month, credit-reporting agency TransUnion said on Tuesday.
Fresh data shows a sharp increase in the number of delinquent student loan borrowers in recent months, following the end of a pandemic-era pause on student debt payments.
Student loan borrowers are considered delinquent if they fail to make a loan payment for 90 days. When late payment stretches on for a total of 270 days, then the borrower falls into default.
Roughly 6 million student loan borrowers entered delinquency between February and April, TransUnion said, estimating that about one-third of those borrowers could enter default in July.
When a federal student loan enters default, the government can send it for collections, garnishing wages or even taking money from Social Security payments or tax refunds.
The Trump administration started collecting defaulted student loan payments in May, lifting a pause initiated in 2020 at the onset of the COVID-19 pandemic.
"We continue to see more and more federal student loan borrowers being reported as the 90+ days delinquent, making a larger number of consumers vulnerable to entering default and the start of collections activities,” Michele Raneri, vice president and head of U.S. research and consulting at TransUnion, said in a statement.
Some borrowers’ credit scores have also suffered. Student loan holders who have entered delinquency in recent months have suffered an average credit-score reduction of 60 points, TransUnion data showed.
Roughly one in five of the newly delinquent borrowers held relatively strong credit ratings of prime or above.
“This underscores the fact that student loan borrowers of any credit risk tier can find themselves falling behind in their payments and at risk for default, even during a time in which we’ve seen most consumers are managing their debt relatively well,” Joshua Turnbull, senior vice president and head of consumer lending at TransUnion, said in a statement.
The risk to borrowers’ credit scores dates back to policy decisions made when former President Joe Biden's administration resumed federal student loan payments after a period of relief that had been enacted during the COVID-19 pandemic.
When the Biden administration lifted the pause in the fall of 2023, the White House set in motion a 12-month moratorium. The administration did not count late payments toward delinquency. That moratorium ended in October, meaning borrowers could be considered delinquent if they didn't make payments for more than 90 days, returning to the way the process worked pre-pandemic.
In all, some 42 million borrowers owe more than $1.6 trillion in student debt, the Department of Education said in April.
Despite the surge in newly delinquent borrowers, many of the loan holders still have time to avert garnished wages. Just 0.3% of the newly delinquent borrowers have already entered default, TransUnion said.
