MILLIONS of Americans are newly at risk of having 15% of their paycheck withheld in response to a rising amount of past due loans.
With nearly six million Americans 90 days late on their student loan repayments, the government is taking steps to recover the trillions of dollars in payments it is owed.
GettyMillions of Americans are at risk of having their paychecks deduced by 15% due to past due student loans[/caption]The federal government is owed a whopping $1.69 trillion in student loan repayments, a concerning figure that has millions of Americans categorized as either delinquent or default borrowers.
Delinquent borrowers constitute those who fail to make timely payments on their financial obligations, with approximately six million newly delinquent federal student loan borrowers being 90 days or more late, per a new TransUnion analysis.
Those who continue to be delinquent risk their student loan going into default, which means that the borrower missed their payments for a set amount of time.
Roughly a third of the newly delinquent borrowers, or around two million Americans, could enter default as early as July, according to TransUnion.
One million additional borrowers could be in default by August, per the credit-reporting agency, 270 days or more late on their payments.
The number of federal Americans that are 90 days or later on their student loan payments has spiked from roughly 20% in February to 31% in April, the highest rate ever recorded, according to TransUnion.
Comparatively, only around 12% of student loan borrowers were 90 days or more late in February 2020, right before the pandemic hit.
The rise in student loan defaults and delinquencies is pushed by a number of factors, such as a rise in enrollment, greater borrowing rates, increasing tuition, and stagnant wages.
Many borrowers are also feeling the pressure from high inflation, interest rates, and cost-of-living.
PAYMENT PAINS
Once a loan is classified as default, borrowers may be hit with a variety of penalties from the federal government.
They may face consequences such as withheld tax refunds or reduced Social Security and disability payments.
Default borrowers may even see a portion of their monthly paychecks deducted.
The federal government is legally permitted to garnish wages in an effort to seize the money it is owed, potentially withholding up to 15% of an individual’s paycheck.
Last month, roughly 195,000 defaulted student loan borrowers started to receive 30-day notices from the Treasury Department informing them that their federal benefits could be withheld as soon as June, per a press release from the Department of Education.
Student Loan Statistics
Student loan debt in the US is over $1.777 trillion Federal student loan debt accounts for 92.2% Average federal student loan debt amount per person is $38,375 Students at a public university borrow $31,960 on average to attain a bachelor’s degreeCredit: Education Data Initiative
The renewed federal consequences for a default loan stem from the Trump administration’s move in early May to resume collections on overdue federal student loans, a procedure that was paused during the COVID-19 pandemic.
Although delinquency occurs prior to a default and does not incur penalties such as reduced wages, it can still have negative consequences on a borrower.
For example, a delinquent borrower may be faced with a lowered credit score, with newly delinquent borrowers seeing an average drop of 60 points, per TransUnion.
This can make it tough to obtain a credit card, home or car loan, or other forms of consumer credit.
Those with a poor credit score may also be charged a higher interest rate than individuals with a good credit rating.
“We continue to see more and more federal student loan borrowers being reported as the 90+ days delinquent, making a larger number of consumers vulnerable to entering default and the start of collections activities,” said Michele Raneri, vice president and head of US research and consulting at TransUnion, in a statement.
Read up on the twist for married student loan borrowers after bosses made a U-turn on a “repayment program” comment.
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GettyBeing a delinquent or default borrower can result in a number of consequences from the federal government[/caption] Read More Details
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