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Business Insider
5 days ago
- Business
- Business Insider
More student-loan borrowers are falling behind on payments — and their paychecks are at risk
The second half of the year is looking grim for millions of student-loan borrowers. That's not necessarily a surprise — President Donald Trump's Department of Education restarted collections on defaulted student loans in May after a five-year pause, meaning borrowers are once again subject to negative credit reporting and the withholding of federal benefits, like wages. The New York Federal Reserve's quarterly report on household debt and credit showed how stark the surge in delinquencies for student-loan borrowers is — it found that 10.2% of student borrowing was serious delinquency in the second quarter, which is more than 90 days past due. For borrowers above the age of 50, the serious delinquency rate ticked up to just over 18%. While there's still time for borrowers in delinquency to avoid default — which typically happens for federal student loans after 270 days — it's a step closer toward the most severe consequences of defaulting, which include wage garnishment. A Department of Education spokesperson told Business Insider that the department "expects wage garnishment to resume later this summer," and did not provide a specific date. The department also previously paused garnishment of Social Security benefits in early June. While it did not specify the length of the pause, Federal Student Aid's debt resolution website said those garnishments will resume "sometime this summer." About 5 million borrowers are currently in default, and a recent analysis from credit reporting firm TransUnion found that of the 5.8 million newly delinquent borrowers as of April, 1.8 million of them could default in July, with an additional 1 million entering default in August and 2 million more in September. "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," Joshua Turnbull, senior vice president and head of consumer lending at TransUnion, previously told Business Insider. Once a borrower enters default, they have three options to return to good standing. The first, loan consolidation, allows borrowers to consolidate their defaulted student loans into a direct consolidation loan, but the record of the default would remain on the borrower's credit history. In contrast, loan rehabilitation would remove a borrower's default status from their credit reports, but it's a lengthy process; borrowers have to agree to make nine payments within 20 days of the due date over a period of 10 consecutive months, and wage and benefits garnishment would continue during that period. Borrowers can also file for bankruptcy, which would halt benefits garnishment. The department recommended that borrowers seek out income-driven repayment plans to help them make payments. However, those plans are undergoing a major overhaul — Trump's spending law eliminated the SAVE plan, which enrolled 8 million borrowers, and replaced existing plans with two less generous options set to go into effect in July 2026. Some borrowers previously told Business Insider that they're struggling to plan financially due to the uncertainty with their payments. Holly Atkinson, who voted for Trump, said she doesn't see herself being able to retire if her student-loan payments go up. "I don't regret voting for him, but what I'm seeing right now makes me very uncomfortable," Atkinson said. "We're all in limbo right now, and I don't like being in limbo."
The Guardian
24-06-2025
- Business
- The Guardian
One in three student loan borrowers risk default as delinquency rates soar
Nearly one in three federal student loan borrowers are at risk of defaulting on payments as early as July, as delinquency and default rates soar in the wake of pandemic-era repayment relief ending. About 5.8 million federal student loan borrowers were 90 days or more past due on their payments as of April 2025, according to a new analysis from TransUnion. That's roughly 31% of borrowers with a payment due, up from 20.5% in February and nearly triple the 11.7% delinquency rate reported in February 2020, just before the pandemic began. The April figure represents the highest delinquency rate ever recorded. 'With over 200 million credit-active consumers in the US, the 5.8 million affected borrowers make up only a small percentage,' Joshua Turnbull, senior vice-president and head of consumer lending at TransUnion told the Guardian. 'However, for individuals who do not resolve their delinquencies, the personal consequences, particularly regarding access to credit, could be significant.' Borrowers fall into default once they are 270 days past due. Based on current trends, approximately 1.8 million borrowers could reach default status in July 2025, making them subject to wage garnishment and other collection actions by the US Department of Education. Another one million are expected to default in August, followed by two million more in September. This sharp rise in delinquency comes less than two months after the education department resumed collections on defaulted federal loans. The updated projections mark a steep increase from May, when the company estimated 1.2 million borrowers could default by July. The consequences for borrowers extend beyond collections. Those who become delinquent are seeing significant declines in their credit scores by an average of 60 points, according to the report. More than one in five borrowers who are now 90 or more days delinquent had previously been in 'prime' or 'super prime' credit tiers. After falling behind, fewer than one in 50 remain in those top tiers, with many dropping at least one full risk category. While only 0.3% of borrowers are currently in default, a relatively small amount of the population, the growing number of those in serious delinquency could signal continued trouble ahead. The slight increase from March to April, just 0.4 percentage points, suggests some borrowers may be trying to catch up, but the overall trend points to mounting financial stress among student loan borrowers.
