2 million student loan borrowers may have their salaries garnished starting July, with up to 15% of defaulters’ salaries deducted
The Wall Street Journal recently exclusively reported that nearly 2 million student loan borrowers may face wage garnishment this summer. The suspension of student loan repayment during the COVID-19 pandemic has ended, and the Ministry of Education has resumed student loan collection. Credit rating agency TransUnion estimates that about 2 million student loan borrowers will be declared in default in July and their wages will be garnished.
The Ministry of Education has previously called on student loan borrowers to pay attention to resuming repayments, otherwise there will be serious consequences. According to statistics, there are about 43 million student loan borrowers nationwide, with a total outstanding student loan debt of more than 1.6 trillion.
TransUnion pointed out that after the end of the student loan forbearance plan during the pandemic, nearly 6 million borrowers will have defaulted on student loan repayments for more than 90 days, and one-third of them will be declared in default in July this year, and their wages will begin to be garnished by the government. TransUnion estimated in early May that the number of people who may face wage garnishment was 1.2 million, but the latest report increased to 2 million.
Wage garnishment will continue until all student loans are repaid or the default status is lifted. Up to 15% of student loan borrowers’ wages may be automatically garnished.
According to a TransUnion report, about 1 million student loan borrowers will default in August, and another 2 million will default in September. Borrowers default when they are 270 days past due.
Joshua Turnbull, director of consumer lending at TransUnion, said some borrowers may have problems negotiating with student loan institutions, while some borrowers are financially strapped and unable to repay their student loans.
The Department of Education resumed collections from defaulting borrowers in May this year, sending notices to borrowers stating that if they fail to repay their student loans, tax refunds and federal benefits may be withheld starting in June.
The Biden administration will provide a 12-month on-ramp period for student loan borrowers in 2023. Delinquency in student loan repayment will not result in a lower credit score, but the on-ramp period ends in the fall of 2024.
TransUnion reported that after the grace period, the credit scores of borrowers who were classified as delinquent had an average drop of 60 points. According to a report released by the New York Fed in March this year, 9 million borrowers are expected to see their credit scores drop this year.
