The Blubber

Monday marks the conclusion of a five-year pause on federal student loan collections, as the Trump administration restarts efforts to pursue millions of borrowers who have defaulted. For many, that means wage garnishments and credit scores potentially nosediving by nearly 200 points.

Collections on defaulted federal loans have been suspended since March 2020, when emergency measures were put in place to ease the financial burden during the COVID-19 pandemic. Now, that leniency is ending. The administration plans to once again seize wages, tax refunds, and federal benefits—including Social Security—from those in default, just as many Americans face elevated costs and continued economic instability tied to President Donald Trump’s volatile tariff strategies.

The scale of the impact could be severe. According to a new report from TransUnion, more than 20% of student loan borrowers are now at risk of default—an increase from pre-pandemic levels.

TransUnion's data reveals that 20.5% of borrowers have payments that are 90 days or more overdue, a sharp rise from 11.5% in February 2020. The credit bureau notes, “This is the highest delinquency rate ever recorded,” suggesting the situation may be even more dire than reported.

“More than one in five student loan borrowers with a due payment have been flagged as seriously delinquent, but that number could be an understatement,” said Michele Raneri, TransUnion’s vice president and head of research, in a press release. Many borrowers who aren’t actively paying, such as students or those in forbearance or deferment, aren’t yet counted as delinquent, she explained.

According to the report, borrowers who entered default after the end of President Joe Biden’s one-year “on-ramp” to repayment—which temporarily shielded borrowers from credit damage due to missed payments—saw their credit scores fall by an average of 63 points.

However, borrowers with stronger credit profiles were hit harder. Those with prime credit scores saw their scores drop by an average of 175 points. Among borrowers who defaulted in January and February, roughly 23% had a credit score between 660 and 719, classified as prime.

Meanwhile, subprime borrowers—those with scores from 300 to 600—experienced the highest rates of serious delinquency. In February 2025, 51% of them were at least 90 days past due, a significant increase from 39% in February 2020.

The Department of Education estimates even greater vulnerability: Over 5 million borrowers haven’t made a payment in more than a year and are officially in default. Another 4 million are severely delinquent and at risk of default, meaning nearly one in four federal student loan borrowers could soon face collections.

When defaulted debt is transferred to collections, the financial repercussions can be severe. Recent findings from the Federal Reserve indicate that more than 9 million borrowers will likely experience sharp credit score declines once missed payments appear on credit reports in the first half of 2025. By midyear, many could see automatic paycheck deductions begin, adding more pressure to an already fragile economic climate.