Millions of student loan borrowers may soon experience significant financial challenges, as highlighted by Senator Elizabeth Warren. Warren expressed her concerns in a recent blog post regarding the Trump administration’s decision to restart collections on defaulted student loans, a move that follows a five-year pause.
This policy change was announced by President Donald Trump on May 5, which includes penalties for student loan defaults such as wage and federal benefits garnishment. According to a report from the New York Federal Reserve, 8.04% of borrowers transitioned into serious delinquency in the first quarter of 2025, intensifying the risk of defaulting for these individuals. Typically, borrowers enter default after being behind on payments for more than 270 days.
The report also indicated that 2.2 million borrowers experienced a drop of over 100 points in their credit scores due to negative reporting that resumed in October 2024. Warren emphasized the long-lasting repercussions of a damaged credit score, which can hinder individuals’ ability to secure loans or even rental housing, and negatively impact job opportunities, as nearly half of employers conduct credit checks.
Warren criticized a recently passed House spending bill that could potentially push “millions more over a financial cliff” by streamlining existing income-driven repayment plans into two options, which are expected to be less favorable for borrowers.
Amid these developments, many borrowers remain unaware of their default status or the options available to remedy their situation, with some expressing frustration over the lack of transparency from the federal government regarding their obligations.
In a related note, Ellen Keast from the Department of Education stated that although collections have resumed, the garnishment of Social Security payments has been temporarily halted. However, these garnishments are expected to resume by summer, along with wage garnishments.
This situation underscores the complexity of the student loan landscape and the potential challenges borrowers may face as they navigate this transition period. Efforts must be made to increase awareness and provide support to those impacted, ensuring that individuals have the resources and knowledge to manage their loans effectively.