Almost 2 million student loan borrowers could have their wages garnished beginning in July as the federal government ramps up efforts to collect on past-due loans, according to a report by The Wall Street Journal.
Roughly 6 million borrowers are now more than 90 days behind on their payments. About one-third of them are at risk of garnishment, a higher figure than previously estimated by TransUnion in May. Wage garnishment allows the government to withhold up to 15 percent of a borrower’s paycheck until the debt is repaid or the borrower is no longer in default.
An additional 1 million borrowers are expected to default by August, followed by another 2 million in September. A default occurs when a borrower is at least 270 days past due on payments.
The Department of Education resumed debt collections last May, ending a pause that had been in place since before the COVID-19 pandemic. Borrowers were notified earlier this year that tax refunds and federal benefits could be withheld starting in June if they did not make arrangements to resume payments. Wage garnishments are scheduled to begin next month.
During the pandemic, student loan payments were suspended. In 2023, the previous administration introduced a 12-month “on-ramp” period to prevent missed payments from affecting borrowers’ credit scores. That program ended in the fall. Since then, borrowers reported as delinquent have seen an average credit score drop of 60 points, according to TransUnion.
A total of 43 million Americans owe a combined $1.6 trillion in student loan debt. More than 9 million borrowers are expected to experience credit score declines this year.
