Monday marks the end of a five-year grace period for federal student loan borrowers as the Trump administration begins to put millions of default borrowers in their collections. For some, that means seized wages and credit scores plummet about 200 points.
The Ministry of Education has not been collected on default loans in March 2020 after many changes were made to loan collection and claims to help borrowers during the Covid-19 pandemic. Now, the Trump administration is threatening to resume practices and decorate wages, tax refunds and federal benefits for default borrowers. This is social security, etc.
This action can financially hinder an unprecedented number of borrowers. According to New Report From the Credit Bureau Transunion, there is a risk that more than one in five borrowers will default on their loans, with a higher share than before the pandemic.
In fact, Transunion’s analysis showed that 20.5% of borrowers have paid more than 90 days in the past, compared to just 11.5% of borrowers in February 2020. And it may become more widespread than it looks.
“It has been reported that more than one in five student loan borrowers with due dates are seriously delinquent, but this figure may actually be much higher,” said Michele Raneri, vice president and head of research at Transunion, in a press release.
That’s because there are many borrowers who may not have paid, but are not considered arrears, including current students and students with postponement or tolerance, Laneli says.
Check out this interactive chart at Fortune.com
The report shows that since the end of the so-called Onramp for President Joe Biden’s so-called Onramp repayment, the one-year grace period for borrowers who missed repayments has dropped by an average of 63 points.
However, the impact, Transunion found, is “significantly large” for those with a higher credit score than those with lower scores. They saw their credit scores plummeted 175 points average. Approximately 23% of the quarter borrowers who experienced defaults in January and February refer to FICO scores between at least 660 and 719.
That being said, subprime borrowers with FICO scores of 300-600 had the highest percentage of seriously overdue borrowers in February 2025, with 51% at least 90 days ago. This is a dramatic increase from 39% in February 2020.
The education department’s own figures put the borrower’s proportion at risk for collections. Over 5 million borrowers have not made monthly payments in more than 360 days and are now defaulting, while 4 million borrowers have been in late stage delinquent and defaulting. That’s almost 25% of all federal borrowers.
If creditors send default debts to their collection, they can wreak havoc on the borrower’s finances. already, Recent research “More than 9 million borrowers from the US Federal Reserve will face a significant drop in their credit scores if delinquency appears in credit reports in the first half of 2025.” By summer, some borrowers could see automatic deductions from their default debt pay, putting an even greater strain on the already volatile economy.
This story was originally featured on Fortune.com.
