Key facts
- 9.3 million student-loan borrowers are in default, with total federal debt in default at $234 billion.
- 1.5 million borrowers are in late-stage delinquency and at risk of default.
- Defaulted loans may lead to wage garnishment, seizure of tax refunds, and loss of Social Security benefits.
- The Department of Education has temporarily paused wage garnishment and seizure of federal benefits.
- New repayment plans took effect July 1, replacing the SAVE plan.
- Democratic senators introduced a bill to protect older and disabled borrowers from Social Security garnishment.
More than 10 million federal student-loan borrowers are struggling with their payments, with over 9.3 million in default as of June 30, according to new data from Federal Student Aid. This represents an increase of 400,000 borrowers from the previous quarter, bringing the total federal student loan debt in default to $234 billion, or approximately 14% of the overall portfolio.
An additional 1.5 million borrowers are in late-stage delinquency and face the risk of entering default within the next six months. The consequences of default can be severe, including damaged credit scores, wage garnishment, seizure of tax refunds, and the potential loss of a portion of Social Security checks.
The Department of Education has temporarily paused wage garnishment and the seizure of federal benefits while it implements new repayment changes that took effect July 1. These changes include new repayment plans and the elimination of the Biden-era SAVE plan, which had offered lower monthly bills. Some borrowers have reported significantly higher projected payments under the new system.
In response to concerns about the potential consequences of default, Democratic lawmakers, including Sens. Bernie Sanders, Elizabeth Warren, and Ed Markey, have introduced legislation aimed at preventing older borrowers and those with disabilities from having their Social Security payments garnished. Senator Sanders stated 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."
Furthermore, the management of defaulted student loans is undergoing a transition, with the Education Department announcing it will transfer this responsibility to the Treasury Department. The Treasury is reportedly seeking vendors to facilitate these collections.