Millions of Americans with student loan debt are now officially in default or at risk of losing money from their paychecks as the federal government restarts its aggressive collections under the Trump administration.

The Department of Education has now lifted pandemic‑era protections that had shielded borrowers from the harshest consequences of default, including wage garnishment and tax refund seizures. According to newly released New York Federal Reserve data, 3.6 million student loan borrowers have defaulted since the end of 2025.

The report revealed the average new defaulted borrower is 40 years old, and defaulted borrowers were more likely to live in the South.

Why It Matters

Student loan debt remains one of the largest sources of household financial stress in the U.S. With millions now in default or delinquency, borrowers are likely to face even more financial insecurity as they deal with higher rents and food prices.

For years, many borrowers were effectively insulated from default penalties due to emergency pauses and temporary relief programs. That has now ended.

What To Know

The Trump administration oversaw several key changes at the Department of Education, impacting payments for millions of borrowers:

• The collections pause on defaulted federal student loans expired
• The Department of Education resumed involuntary collections
• And employers are once again required to comply with wage garnishment orders 

As a result, borrowers who failed to resume payments or enroll in relief programs are now seeing their financial situation worsen rapidly, experts say.

“The worst part of all of this is that none of this has to happen. There is no shortage of funds to loan. Universities are not failing because students are defaulting on their tuition payments. The system is not going broke—even with forgiveness, the student loan system collects everything it ever loaned plus above-market interest,” Drew Powers, founder of Illinois-based Powers Financial Group, told Newsweek.

“Rather, this is one hundred percent political. While DC bickers, the Main Street American suffers.”

What Default Means for Borrowers

Borrowers who fall into default face immediate and long‑term consequences.

That includes up to 15 percent of their disposable wages garnished, federal tax refunds seized and even their Social Security benefits reduced.

There's also a strong likelihood of credit score damage, making it harder to rent or borrow in the future.

Why Millions Are Now in Default

According to the New York Federal Reserve report, the spike in defaults reflects a combination of policy changes and borrower confusion.

The abrupt end of pandemic‑era payment protections alongside missed notices or misunderstanding about repayment requirements caused a surge in defaults.

Additionally, amid this confusion, many borrowers failed to enroll in income‑driven repayment (IDR) plans in time.

“The tone has shifted from relief to repayment enforcement, even as it has temporarily delayed some involuntary collections like wage garnishment while new repayment options are finalized,” Alex Beene, financial literacy instructor for the University of Tennessee at Martin, told Newsweek. 

How Paychecks Are Being Affected

Once a borrower enters default, the federal government can move quickly.

What’s already happening:

• Wage garnishment notices sent to employers
• Employers legally required to withhold earnings
• Borrowers often notified after the process begins 

As a result, borrowers are often experiencing shrinking paychecks even as they already struggle with rising costs.

What Borrowers Can Do Right Now

Experts say there are still many options on the table for borrowers facing default:

• Loan rehabilitation, which can remove default status after a series of payments
• Consolidation into a new federal loan to reset standing
• Enrollment in income‑driven repayment, which may lower payments dramatically 

“Borrowers will need to call their provider and see where they stand on forgiveness and also start making payments when they can,” Kevin Thompson, CEO of 9i Capital Group and host of the 9innings podcast, told Newsweek.

“This has been a complete debacle for those who borrowed money as the hurdle continues to increase for them, pushing many into default which hurts their access to credit.”

What Happens Next

The Trump administration has argued that restarting its collections process protects taxpayers.

“For too long, Americans have shouldered the consequences of poor leadership and persistent mismanagement of our federal student aid portfolio. Today’s actions reclaim integrity and accountability for you, the American people,” Education Secretary Linda McMahon wrote in a letter in March about resuming debt collections for student loan borrowers by the Treasury.

In the meantime, borrowers could find themselves dealing with heightened financial insecurity and long-term damage to their credit scores.

“In the coming months, expect more borrowers to be pushed into difficult choices, especially those leaving SAVE,” Beene said.