The number of student-loan borrowers falling behind on payments continues to grow.
New Federal Student Aid data through June 30 showed that over the past quarter, 9.3 million borrowers were in default on their loans, which typically happens after 270 days of nonpayment. That’s an increase of 400,000 borrowers since the prior quarter. This brings the total amount of federal student loan debt in default to $234 billion, or about 14% of the overall portfolio.
Additionally, 1.5 million borrowers are in late-stage delinquency and at risk of entering default in the next six months, according to FSA.
The consequences of default can be severe. In addition to a damaged credit score, borrowers could face wage garnishment, seizure of tax refunds, or loss of part of their Social Security check. The Department of Education has paused wage garnishment and the seizure of federal benefits, indicating that the pause is temporary while the department implements President Donald Trump’s repayment changes.
Those changes, which took effect July 1, include new repayment plans and the elimination of the Biden-era SAVE plan, which provided borrowers with lower monthly bills. Borrowers have told Business Insider over the past few months that their projected payments have surged under the changes, and they’re concerned about the consequences of default.
Democratic lawmakers have pushed to stave off those consequences. In August, Sens. Bernie Sanders, Elizabeth Warren, and Ed Markey introduced a bill to prevent older borrowers and borrowers with disabilities from facing Social Security garnishment in the event of a default.
Sanders said in a statement that “in the richest country in the history of the world, no senior should have their Social Security payments taken away from them to pay back student debt.”
The defaulted portfolio is also undergoing changes: the Education Department announced that it would transfer management of defaulted student loans to the Treasury Department. Business Insider first reported in August that the Treasury is moving forward with the transition by seeking out vendors to facilitate collections.
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