2 million student borrowers could see wages garnished to pay back loans starting in July

Around 6 million student borrowers are 90 days or more past due on their student loan payments, and around a third of them, or 2 million, could start having a portion of their wages garnished by the federal government starting in July to pay back their loans. 

According to the Wall Street Journal, the number of borrowers at risk of wage garnishments is higher than the 1.2 million that was estimated by TransUnion. Wage garnishments—a legal procedure allowing a portion of wages to be withheld by the government to pay down a debt—could spell lower pay for the student borrowers who are not up to date on payments. 

The wage garnishments are set to start back up this summer after the years following the Covid-19 pandemic, where student loans were not being paid off by many borrowers. Those who get hit with wage garnishments could see up to 15 percent of their paycheck automatically deducted to pay off the loans.

In May, the Trump administration restarted the collection of student loans on those who had defaulted on their loans, which had not been routine since the beginning of the Covid-19 pandemic several years ago. At the time of the Biden policy reversal, only 38 percent of student borrowers were current on their loans.

After student loan payments were paused during the pandemic, the Biden administration allowed for an "on ramp" of 12 months where payments would not hurt credit scores, however, that ended last fall, and many of those behind on their loan payments have seen an average 60-point drop in their credit scores.

Only 9 percent of borrowers who defaulted on their loans were current on their payments as of April of this year. Around 43 million borrowers owe over a combined $1.6 trillion in debt on their loans, and about a million are set to see a drop in their credit scores this year.