(NewsNation) — Nearly a third of federal student loan borrowers are behind on their payments, raising concerns that millions could soon face wage garnishment.
As of July, about 29% of borrowers — 5.4 million people — were at lesat 90 days past due on their loan payments, according to new data from TransUnion.
That share was essentially unchanged from June and only slightly below the 31% peak in April. Before the pandemic, in February 2020, only about 12% of student loan borrowers were that far behind.
The Education Department resumed collections on defaulted student loans in May, but the latest figures suggest many are still behind on their payments, leaving them at risk of wage garnishment or withheld tax refunds if they remain, or fall, into default.
Overall, some 42.3 million borrowers owe $1.67 trillion in student loans, according to the Education Department. About 5.3 million borrowers were in default — at least 270 days past due — as of June.
TransUnion’s 29% figure reflects borrowers in the repayment cycle, so it excludes those in school, deferment or forbearance.
Why are student loan borrowers behind on their payments?
Borrowers cite affordability as the main reason for falling behind. Nearly half of those missing payments told TransUnion they simply couldn’t afford them, while another third said they were prioritizing other bills, according to a recent survey.
But respondents indicated their priorities would change in the face of involuntary collections.
“Once these actions begin, we anticipate that we may see an unprecedented shift in payment hierarchy where student loans are no longer at the bottom,” Michele Raneri, vice president and head of U.S. research and consulting at TransUnion, said in a statement.
In July, the Education Department said it expected wage garnishment to begin “later this summer,” but that hasn’t happened yet. NewsNation reached out to the Education Department about the specific timeline, but did not hear back.
The student loan strain is already spilling over into other types of debt.
Among seriously delinquent student loan borrowers, the 90-day past due rate on credit cards has jumped from 1% in December to nearly 6% in June, TransUnion data shows. For mortgages, it’s climbed from 4.67% to 5.59% over the same period.
“During the extended federal student loan payment pause, many borrowers took on additional credit — possibly to manage rising living costs or other financial obligations,” said Joshua Turnbull, senior vice president and head of consumer lending at TransUnion. “Now, with payments resuming, borrowers are facing a financial reckoning.”
Credit scores take a hit as delinquencies return
Since the pandemic-era pause ended, new student loan delinquencies have reappeared on credit reports this year, dragging down borrowers’ scores.
On average, a delinquency brings down a borrower’s credit score by 60 points, Raneri told Bloomberg. And those with super prime credit scores — above 781 points — have seen decreases of more than 170 points.
Younger borrowers have been hit especially hard. A recent report from FICO found Gen Z consumers (ages 18–29) saw the steepest average credit score decline of any age group over the past year, with student loan debt being a key driver.
A separate May analysis from the Federal Reserve Bank of New York found that more than 2.2 million student loan borrowers who became newly delinquent saw their credit scores drop more than 100 points and more than one million saw drops of at least 150 points.
Lower credit scores can mean higher borrowing costs, or even being denied for new credit — raising the stakes for millions already struggling to repay.