Student loan borrowers could face wage garnishment
Millions of Americans who are behind on their federal student loans could soon have their paychecks garnished as the U.S. Department of Education moves to resume aggressive collections.
Fox – 5 Atlanta
Data shows that student loan borrowers are suffering.
A record number of loans are in default, according to an Associated Press analysis this week. Since June 2025, when borrowers were again allowed to default on their loans, the number of defaults has increased by about 4.2 million to a record 9.52 million, according to data from the Office of Federal Student Aid. During the pandemic, the government suspended student loan payments to prevent loan defaults.
If borrowers don’t act quickly, defaults could continue for years, experts say.
“Delinquency on federal student loans can lead to wage garnishment and tax refund garnishment, which can negatively impact your credit for years to come,” said Stacey McFetress, senior director of education finance at Bright Horizons, which provides education advisory services to organizations and families.
The Trump administration has delayed refunds and wage garnishments, but they are expected to resume.
What should people with student loans do?
McFetre said defaulting borrowers must repay or enter rehabilitation. The first step is to open the email. Don’t ignore notices about your student loans, she said.
“To begin the process, you should respond to communications from your loan servicer, collection agency, and Department of Education,” she said.
When responding, the Department of Education’s federal student aid site says to fully explain your situation and discuss your options. “If repayment arrangements are made soon after a loan defaults, it may be possible to resolve the default quickly,” the report said.
Options include paying off your student loans in full, but this probably isn’t an option for most people. You also have the option of rehabilitating or consolidating your loans.
According to the Financial Services Agency, it will take several months for loan rehabilitation to be completed, but applications for loan consolidation can be applied for immediately.
However, if you consolidate a defaulted loan, records of late payments and defaults that were reported before the loan went into default will remain on your credit history for seven years after they were first reported. It is in contrast to rehabilitation.
There are other differences between the two programs that borrowers should check the FSA site and talk to their loan servicer to understand before making a decision.
What happens to borrowers who default?
Your credit score will drop. “Payment history is the single biggest factor in your FICO score, so it’s the first thing to address for people who are behind on their student loans,” said Tommy Lee, senior director at credit scoring company FICO.
He said the national average FICO score dropped from 716 in January 2025 to 714 last October, due in part to record student loan delinquencies. Credit scores are important because lenders use them to decide whether to approve you for a loan or credit card, and to determine interest rates and credit limits.
“What happens next will depend on how quickly people who are behind on their student loans can get their payments back on track, and if possible, avoid delaying payments from spilling over into other credit obligations,” Lee said.
For people whose credit scores have declined, “the good news is that today’s low scores are not permanent,” Lee said. “FICO scores are designed to reflect recent behavior, so having the latest information on your outstanding balance and staying current is the most direct path to recovery.”
For borrowers who are struggling but haven’t yet seen a decline in their credit score, “contact your loan servicer before you miss a payment, not after,” he said. “Deferrals and income-driven repayment options can help protect your score before damage is done.”
new student loan rules
Earlier this month, federal student loans underwent the most sweeping overhaul in decades.
Changes include new borrowers facing loan caps, the elimination of Grad PLUS loans, and only two repayment options. Loan experts say many older borrowers have had to consolidate their loans, choose new repayment plans or risk being inadvertently placed on repayment plans that don’t fit their budgets.
Some defaulting borrowers may be confused by changes to their student loans in recent years.
“We often hear from borrowers that they are confused about what they need to do to resume repayments after the CARES ACT payment pause, loan servicer changes, and the many legal issues facing federal student loans,” McFettle said. “Many borrowers did not realize that while their student loan issues were being resolved, they still did not receive SAVE, administrative or other forbearance.”
Rising costs and financial pressures may have led other borrowers to prioritize other expenses, while more borrowers were unable to make their monthly payments, he said.
But instead of not paying, borrowers should take the time to consider new plans and payment options.
“The federal student loan repayment changes that went into effect on July 1 are intended to simplify the repayment process and reduce confusion for borrowers by reducing the number of repayment plans over time,” McFettle said. “The government is also proposing a 1% reduction in interest rates on direct debits for borrowers in repayments, which it hopes will encourage borrowers to start making repayments and encourage direct debits to ensure on-time repayments.”
Medora Lee is USA TODAY’s money, markets and personal finance reporter. Please contact us at mjlee@usatoday.com. Subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
