The pause in student loan repayments, which began in March 2020 during the first Trump administration, was only supposed to last until September of that year. Instead, Democratic congresses kept extending the pause in repayments, hoping that Joe Biden would find a way to forgive all college loan debt. Finally, in June 2023, Republicans ended the pause and mandated its termination.
In October 2023, repayment of student loans resumed. This has thrown a cold bucket of reality into borrowers' faces and requires them to come to grips with the grim fact that a large percentage of them are going to default.
About 6 million student loan borrowers are 90 days or more past due. TransUnion Credit Bureau reports that about a third of those, or two million borrowers, could move into default by July and start having their pay docked by the government.
It gets worse. More than one million borrowers are on track to default by August, followed by another two million in September.
If any of those borrowers are still waiting for Congress to forgive their loans or provide relief from their current dire straits, they can forget about it. Republicans in the House and Senate are tired of Democrats trying to run out the clock on student debt repayment and will ignore pleas to end wage garnishments.
“With over 200 million credit-active consumers in the US, the 5.8 million affected borrowers make up only a small percentage,” Joshua Turnbull, senior vice-president and head of consumer lending at TransUnion, told the Guardian.
“However, for individuals who do not resolve their delinquencies, the personal consequences, particularly regarding access to credit, could be significant," he added.
Borrowers in default can expect to lose up to 60 points on their credit score. That's a significant hit, as The Guardian explains.
More than one in five borrowers who are now 90 or more days delinquent had previously been in “prime” or “super prime” credit tiers. After falling behind, fewer than one in 50 remain in those top tiers, with many dropping at least one full risk category.
While only 0.3% of borrowers are currently in default, a relatively small amount of the population, the growing number of those in serious delinquency could signal continued trouble ahead. The slight increase from March to April, just 0.4 percentage points, suggests some borrowers may be trying to catch up, but the overall trend points to mounting financial stress among student loan borrowers.
Borrowers in default can expect garnishments of up to 15% of their gross income. For borrowers in this position, bankruptcy rarely helps.
"To have student loans discharged in bankruptcy, borrowers must prove 'undue hardship' through an adversary proceeding, which is a separate lawsuit within the bankruptcy case," according to the National Consumer Law Center.
"Undue hardship" is a tough sell and necessarily so. The DOJ will want you to show "that your hardship will continue for a significant amount of the time left on repaying your loans," and that your "expenses equal or exceed your income."
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Borrowers fall into default once they are 270 days past due. Based on current trends, approximately 1.8 million borrowers could reach default status in July 2025, making them subject to wage garnishment and other collection actions by the US Department of Education. Another one million are expected to default in August, followed by two million more in September.
Some borrowers might be having communication issues with their student-loan servicers, while others might be too financially stretched to make payments, said Joshua Turnbull, head of consumer lending at TransUnion.
The Education Department restarted collections on defaulted student loans in May, something it hadn’t done since before the pandemic. The department sent notices to borrowers saying their tax refunds and federal benefits could be withheld starting in June if they don’t take steps to resume payments.
Democrats are all about fairness until they're not. It is patently unfair for those who paid back their student loans or who never took one out to be forced to play by one set of rules while the current crop of borrowers is allowed to play by another.
