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| Defaulted student-loan borrowers are at risk of wage garnishment this summer. Getty Images |
The second half of the year is shaping up to be especially difficult for millions of Americans carrying student debt. After years of relief during the pandemic, the tide has turned, and many borrowers are once again finding themselves in financial trouble.
In May, the Department of Education under President Donald Trump restarted collections on defaulted student loans after a five-year pause. That decision put struggling borrowers back on the hook for harsh consequences, including negative credit reporting and the withholding of federal benefits such as wages and Social Security.
A Sharp Rise in Delinquencies
The New York Federal Reserve’s quarterly report on household debt and credit highlighted how steep the increase in student loan delinquencies has been. According to the report, 10.2% of all student borrowing was in serious delinquency meaning more than 90 days past due during the second quarter.
For older borrowers, the situation looks even worse. Among borrowers aged 50 and above, the serious delinquency rate climbed to over 18%, signaling that many nearing retirement are struggling to keep up with their student debt obligations.
While delinquency does not yet equal default federal student loans generally enter default after 270 days without payment it is one step closer to severe consequences like wage garnishment and permanent damage to a borrower’s financial record.
Wage Garnishment Is Coming Back
A spokesperson for the Department of Education confirmed that wage garnishment will resume later this summer, although no exact date has been announced. For now, the garnishment of Social Security benefits remains paused, but that, too, is expected to restart “sometime this summer,” according to Federal Student Aid’s debt resolution site.
This means that borrowers who remain in delinquency risk having their paychecks or benefits docked before the year is over, putting even more pressure on already tight household budgets.
Millions Facing the Risk of Default
The scope of the problem is staggering. Roughly 5 million borrowers are already in default, and new data suggests millions more are on the brink. A TransUnion analysis showed that of 5.8 million borrowers who became newly delinquent as of April, as many as 1.8 million could default in July, with another 1 million at risk in August and 2 million more in September.
Joshua Turnbull, senior vice president and head of consumer lending at TransUnion, explained the uncertainty: “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 and are just either choosing not to, or don’t know they need to.”
Options for Borrowers in Default
Once a borrower defaults, there are only a few pathways back to good standing:
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Loan consolidation: Borrowers can consolidate their defaulted loans into a direct consolidation loan. However, the record of default will remain on their credit report.
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Loan rehabilitation: This option removes the default status from credit reports, but it requires borrowers to make nine consecutive on-time payments over 10 months. During this process, wage and benefit garnishments continue.
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Bankruptcy: Filing for bankruptcy halts garnishments but comes with significant long-term consequences.
The Department of Education encourages borrowers to explore income-driven repayment (IDR) plans, which cap payments based on income and family size. But here too, uncertainty looms. Trump’s recent spending law eliminated the SAVE plan, which had enrolled over 8 million borrowers, and replaced it with two less generous repayment options that will take effect in July 2026.
Borrowers Left in Limbo
The lack of clarity around repayment options has left many Americans feeling anxious and unprepared. Borrowers say they are unable to plan financially because they don’t know what their payments will look like in the coming months or years.
Holly Atkinson, a borrower who supported Trump in 2016, expressed her frustration: “I don’t regret voting for him, but what I’m seeing right now makes me very uncomfortable. We’re all in limbo right now, and I don’t like being in limbo.”
With millions of borrowers facing delinquency, default, and the threat of wage garnishment, the student loan crisis is entering a new phase of urgency. For older borrowers, the stakes are even higher, as many may be forced to delay or abandon retirement plans to deal with debt that has lingered for decades.
Unless new relief measures or repayment reforms are introduced, the second half of the year could mark a wave of defaults not seen since before the pandemic, adding further stress to both borrowers and the broader economy.
