The United States Department of Education resumed collections on defaulted student loans in May for the first time since before the COVID-19 pandemic and approximately 6 million borrowers are 90 days or more delinquent.
The Wall Street Journal reported that, according to TransUnion, approximately 1/3 or 2 million could be in default in July and could expect wage garnishments to begin by the federal government.
Borrowers are in default of paying their student loans when they are 270 days past due of having made a payment. In August, another 1 million will be in default, followed by another 2 million in September.
While some borrowers are possibly experiencing communication issues with their student-loan servicers, some are probably struggling financially and unable to make payments, according to TransUnion Head of Consumer Lending Joshua Turnbull.
The U.S. DOE sent notices to borrowers who are in default in June notifying them that tax refunds and other federal benefits are at risk if they do not resume a regular schedule of student loan payments.
Borrowers could lose up to 15 percent of their wages in automatic deductions from paychecks in order to make up for defaulted loan payments. During the COVID-19 pandemic, the federal government gave student loan borrowers a reprieve from making payments and the Biden Administration gave borrowers a 12-month period in 2023 of late or missed payments not affecting credit scores.
However, the reprieves ended in fall 2024.
Newly delinquent loan borrowers have seen an average 60-point drop in credit scores, according to TransUnion. But 9 percent of borrowers who were delinquent on payments became current by April with regular payments to the federal government.
Approximately 43 million student-loan borrowers owe more than $1.6 trillion. Credit scores for more than 9 million borrowers are expected to drop in 2025 for delinquency in making payments.
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Rebecca Barnabi
