Defaulting borrowers could see up to 15 percent of their monthly wages get withheld by their employer.
Roughly six million federal student loan borrowers have become newly delinquent, with almost a third at risk of hitting default status next month, which could trigger wage garnishment and other procedures against them, credit reporting agency TransUnion said in a June 24 statement.
There were 5.8 million borrowers with payments being 90 days or more past due as of April, TransUnion said. When payments become 270 days past due, the borrower enters default status. “It is estimated that nearly one-third, approximately 1.8 million, could reach default status in July 2025.”
Once a borrower hits default status, the consequences can be severe.
Their wages may be garnished, according to the Department of Education. “This means your employer may be required to withhold up to 15 percent of your pay and send it to your loan holder to repay your defaulted loan.”
The borrower can lose eligibility for additional federal student aid, become ineligible for assistance under most of the federal benefit programs, see their tax refunds and federal benefit payments being withheld, and be brought to court by the lender, according to the department.
“The default is reported to national consumer reporting agencies, damaging your credit rating and affecting your ability to buy a car or house or to get a credit card,” it said. “It may take years to reestablish a good credit record.”
Moreover, the entire unpaid balance, along with any interest owed, can become “immediately due.”
The Department of Education had ceased collecting federal student loan repayments since March 2020 amid the COVID-19 pandemic. On April 21, the agency announced restarting collections beginning May 5.
Congress had mandated that the collections begin in October 2023. However, the Biden administration “refused to lift the collections pause and kept borrowers in a confusing limbo,” the department said, adding that resuming loan collection prevents taxpayers from having to shoulder the cost of these loans.
According to TransUnion, the 1.8 million borrowers that could hit default status next month may only be the beginning of a significant jump in such cases.
