The summer is looking grim for millions of student-loan borrowers behind on payments
The student debt collection machine has been turned back on, and it could mean bad news for millions of borrowers later this summer.
President Donald Trump's announcement that collections on defaulted student loans would restart on May 5 left borrowers behind on payments facing a scramble: make payments to avoid entering default, or find a way to get out of default to avoid wage and federal benefits garnishment.
A new analysis from TransUnion, a credit reporting firm, showed an uptick in borrowers at risk of facing those consequences this summer. It found that 31% of borrowers have a payment of more than 90 days past due as of April — up from 20.5% in February — and it estimates that of the 5.8 million newly delinquent borrowers, 1.8 million of them could default in July.
The analysis said an additional 1 million borrowers could default in August, followed by another 2 million in September.
"That begs the question, why is that number so high right now?" Joshua Turnbull, senior vice president and head of consumer lending at TransUnion, told BI. "That number is either high because people cannot afford to pay their student loans, or don't think they can afford to pay their student loans, or people can afford to pay their student loans and they're just either choosing not to, or don't know they need to."
A federal student-loan borrower typically enters default after not making payments for over 270 days. Over the course of the pandemic, borrowers behind on payments were spared from garnishment and negative credit reporting due to a pause put in place by Trump and continued under former President Joe Biden.
Negative credit reporting resumed in October 2024, and while the Department of Education said in early June it would be pausing Social Security garnishment, wage garnishment will resume later this summer. The department did not respond to a request for comment from BI on a specific date that wage garnishment will begin.
The Department of Education said in April that restarting collections will "move the federal student loan portfolio back into repayment, which benefits borrowers and taxpayers alike."
Turnbull said the economic implications of delinquency and default — including hits to credit scores and losing part of a paycheck — could be severe.
"Those are things that, I'm not only behind in paying on my student loan, but now my income stream is impacted as well," Turnbull said. "So, it's kind of a compounding effect that consumers would see."
Options for student-loan borrowers to avoid default
Turnbull said that problems start for borrowers behind on payments once their delinquent status is reported. At that point, their credit scores will decline, and it could immediately impact their abilities to get mortgages, competitive auto loan rates, and more.
"I would just encourage anyone who has a student loan, is not paying on that now, and is confused or worried about where they're going to come up with the funds, don't wait," Turnbull said. "Don't wait until you get that 90-day delinquency to figure out what your plan is, or to figure out where you're supposed to send your payment."
Some borrowers who took the initiative to start a repayment plan are still struggling. Michael George, 31, is in default on his student loans. He said he contacted Federal Student Aid's debt resolution group to begin loan rehabilitation, which requires a borrower to make nine payments within 20 days of the due date over a period of 10 consecutive months.
While Federal Student Aid's website said that wage garnishment will continue until a borrower makes at least five rehabilitation payments, George said his servicer gave him conflicting information regarding the repayment schedule requirements, and he made payments that ended up not counting toward his rehabilitation plan.
"There's no proper information, there's no consistency, there's no one streamlined black or white conciseness," George said. "It literally feels like a dumpster fire of how rapid the announcement was."
Along with loan rehabilitation, borrowers can also consolidate their defaulted student loan into a federal direct consolidation loan. While this option is quicker than loan rehabilitation, a key difference is that the record of the default will remain on the borrower's credit history. Borrowers can also file for bankruptcy using a process that was streamlined under Biden.
Some borrowers who voted for Trump previously told BI that while they support efforts to collect student loans, the abrupt nature of the collections restart has sparked confusion and alarm among those in default, or at risk of defaulting.
Linda McMahon, Trump's education secretary, said in an opinion piece that the collections restart is not intended to "be unkind to student borrowers."
"Borrowing money and failing to pay it back isn't a victimless offense," she said. "Debt doesn't go away; it gets transferred to others."
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