Student loan debt has become a mounting issue over the past several decades, as tuition prices rose exponentially. Young Americans enrolling in college began applying for six-figure loans to cover the cost of education, but many found it difficult to pay down the principal with competitive job markets and a rising cost of living.
These compounding challenges have increased student loan delinquencies, with some borrowers opting to temporarily defer their loan payments.
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Americans have been able to defer federal loan payments since the onset of Covid-19, through programs originally implemented to provide financial relief during a period of uncertainty.
The Trump administration recently announced that nearly 5 million Americans with student loans in default will need to resume payments soon.
However, at a time when millions of Americans live paycheck to paycheck, financial markets are volatile, and recession risks loom large, this additional cost will likely create ripple effects for many households.
College students are pictured at their graduation ceremony. New action from the Trump administration will likely make it even harder for many Americans to manage student loan debt.
Image source: Getty Images
College tuition and student loan debt are on the rise— and have been for years
College tuition costs have grown exponentially over the past few decades. In 1975, annual tuition, room, and board at four-year universities averaged $2,187, but by 2023, the cost of higher education had jumped to over $30,000 per year.
The rising cost of education and weakening labor markets from frequent economic recessions in the 21st century have created difficult repayment circumstances for many borrowers.
Student loan debt reached over 1.6 trillion in 2024, growing 42% from just a decade ago. Serious loan delinquencies — when payments are 90 days late or more — have hit an all-time high, which can have a devastating impact on a borrower’s financial standing.
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Student loan delinquency can result in late fees, lower credit scores, and loan default, in which payments are nine months delayed and the loan balance becomes due in its entirety.Â
The Consumer Financial Protection Bureau (CFPB) found that 67% of student loan borrowers have difficulty making payments, and more than one in three have made late payments. Though Covid-era student loan leniency programs provided temporary relief, the Trump administration says major changes are on the horizon.
Wage garnishment and tax refund withholdings will begin for Americans with defaulted loans next monthÂ
Trump administration Secretary of Education Linda McMahon recently announced an end to student loan leniency programs, which the first Trump administration had enacted to help ease financial strain during the 2020, at the height of Covid.
McMahon noted that “American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies,” but critics of the plan note that this will disproportionately impact the financially vulnerable.
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Beginning May 5, payment collection with a resume for all loans in default will be sent to the Department of the Treasury for collection, after a five-year pause. Those who don’t resume timely payments will be subject to wage garnishment and withholding of Social Security and tax refunds.
More than 40 million Americans have outstanding student loan debt, and over 5 million have loans in default that the Department of Education’s announcement will impact.
Borrowers can avoid wage garnishment by creating a rehabilitation plan with their loan provider. After providing proof of income and monthly expenses, a payment amount is calculated and the loan is taken out of default after nine months of timely payments.
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