After a five-year pause, the U.S. Department of Education has resumed collections on defaulted student loans, meaning over five million Americans who haven’t made a payment in more than 270 days will be subject to wage garnishment later this summer.
The return of collections, combined with rising student loan balances and newly reported delinquencies impacting credit scores, is expected to increase financial stress across the workforce.
Employers, especially those prioritizing financial wellness, should be prepared for incoming wage garnishment orders and understand how these financial pressures may affect employee wellbeing, productivity, and retention.
How wage garnishments will affect employees
When an employee is in default on their student loans, a loan holder can order an employer to withhold up to 15% of an employee’s disposable pay, which is the amount that remains after deductions, to collect on the defaulted debt. This continues until the loan is removed from default or paid in full.
In addition to the five million borrowers who are already in default, another four million are in late-stage delinquency and haven’t made a payment in the last 91-180 days. This means there could be almost 10 million borrowers in default and subject to wage garnishment this year, which is 25% (opens a new window) of the federal student loan portfolio.
Negative impacts to credit scores will also increase financial challenges
Missed student loan payments that weren’t reported between 2020 and 2024 are also now appearing in credit reports. More than 2.2 million (opens a new window) student loan borrowers who became newly delinquent saw their credit scores drop more than 100 points, and more than one million saw drops of at least 150 points. They’ll now find it harder to qualify for financing and face higher borrowing costs, further increasing financial strain.
Supporting employees facing financial stress
Student loan balances increased $16 billion (opens a new window) in the first quarter of 2025, reaching $1.63 trillion. The current rate of delinquency, which has risen 9% over the past five years, represents the highest figure (opens a new window) ever recorded.
As rising debt, inflation and economic uncertainty continue to create significant financial strain for employees, assessing how a holistic financial wellbeing strategy addressing financial literacy, budgeting, and the long-term implications of student loan burdens will be increasingly important.
According to Lockton’s 2025 National Benefits Survey (opens a new window), while plan sponsors are prioritizing education and financial wellness programs, benefits involving more complex financial solutions, such as debt financing and student loan assistance, remain less common.
To improve financial wellbeing for those who may be in default or in need of student loan support, benefit options that can help address stress, enhance the overall employee experience, and strengthen talent attraction include:
Student loan repayment guidance: These programs offer personalized support and resources to help employees understand, manage, and optimize their student loan repayment strategy based on their individual loan terms. Services include student loan coaching, decision support, debt management and budgeting tools, loan refinancing, and communications support.
Student loan repayment assistance: With repayment assistance, the employer provides a contribution toward the employee's student loan balance to support and accelerate debt payoff, helping alleviate the financial burden and achieve financial security sooner. Student loan repayment assistance can be administered by various solutions in the market.
As many employers anticipate wage garnishment orders later this summer, it’s important to proactively educate employees and provide resources that can assist with student loan repayment. While legislation (opens a new window) aimed at suspending wage garnishments was recently introduced, its outcome is uncertain, and employers should be prepared for garnishments to resume.
Rising student loan balances and wage garnishments are just one of many factors shaping the financial health of today’s workforce. Visit Lockton People Solutions (opens a new window) and contact us to learn more about building holistic financial wellbeing strategies that support your people and your business.
