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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.”
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