2M Student Loan Borrowers Could Have Wages Docked

Nearly 2 million student loan borrowers could see their paychecks docked by the government this summer, as missed payments put them at risk of wage garnishment for the first time since the pandemic. Following the end of pandemic-era payment relief, roughly 6 million federal student loan borrowers are at least 90 days behind on payments, according to estimates from credit reporting firm TransUnion. About a third of those—close to 2 million—are expected to fall into default by July, which would trigger wage garnishment. That's a jump from the 1.2 million defaults TransUnion projected in May, per the Wall Street Journal.

Borrowers typically hit default status when they're 270 days overdue. Another million could default by August, with 2 million more on track for September, according to the estimates. The Education Department, which resumed collections on defaulted loans in May, is urging borrowers to resume payments and warning of the consequences for those who don't. Borrowers at risk have been notified that their tax refunds and federal benefits might be withheld if they don't start making payments. Wage garnishment, set to restart this summer, allows up to 15% of a borrower's paycheck to be taken until the debt is paid or resolved.

After pandemic payment pauses, the Biden administration introduced a 12-month period where late payments wouldn't affect credit scores, but that ended last fall. Since then, delinquent borrowers have seen their credit scores drop by an average of 60 points. Only 9% of those who became delinquent have caught up on payments as of April, TransUnion reports. Overall, 43 million Americans owe more than $1.6 trillion in student loans, and more than 9 million are expected to see their credit scores fall this year, according to the New York Fed. Videos claiming to show how to "delete your student loans" by disputing the debt on credit reports are now racking up views on TikTok, per the New York Times. But while experts say the move can improve one's credit score, the debt obligation still exists. (This content was created with the help of AI. Read our AI policy.)