'A band-aid on a serious wound': More student-loan borrowers are at risk of Social Security and tax refund seizures once Trump's pause lifts
Business Insider
February 24, 2026
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Student-loan borrowers face growing risks as millions could lose access to federal benefits once President Donald Trump's pause on garnishments lifts. A recent report reveals that nearly 9 million borrowers—about one in five—are in default, with many others falling behind on payments. This surge in defaults has been attributed to the Biden administration's relief measures, which paused reporting missed payments to credit agencies during repayment delays.
The Department of Education reported that over 1800 institutions have nonpayment rates exceeding 25%, signaling a critical issue in student-loan management. Borrowers struggling with defaults face severe consequences, including wage garnishment and seizure of Social Security or tax refunds once the pause is lifted. This situation has been further complicated by Trump's changes to income-driven repayment plans, which replaced more generous options with less favorable terms, extending loan forgiveness timelines and increasing monthly payments.
The report highlights that resuming garnishments would exacerbate financial instability for many borrowers, particularly those already affected by economic hardships. Additionally, the elimination of Biden's SAVE plan, designed to offer affordable repayment options, leaves vulnerable borrowers at greater risk of delinquency. With credit scores declining by an average of 57 points, these individuals face challenges accessing basic necessities and securing future loans.
Student-loan borrowers have limited options to address defaults, including loan rehabilitation or consolidation. However, these solutions come with ongoing risks, such as continued garnishments during rehabilitation and lasting credit impacts. The situation underscores the urgent need for policymakers to balance repayment obligations with the financial realities of borrowers navigating an increasingly complex system.
For businesses, this issue highlights the broader economic implications of student-debt challenges. High default rates signal a growing problem in debt management that could impact consumer spending, credit availability, and overall economic stability. Addressing these issues will require innovative solutions to support borrowers while ensuring sustainable repayment pathways for the financial system.
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Originally published on Business Insider on 2/24/2026