Elizabeth Warren is warning that millions of people with student loans might be about to carry what she calls a “financial scarlet letter.” Once collections on defaulted federal student loans restart, your credit score could take a big hit, and that affects more than just your finances.
She explained that borrowers who default—usually after missing payments for over 270 days—are now being pushed back into the collection system after five years of relief. That means wage garnishment, lost federal benefits, and negative marks on credit reports are back on the table.
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Your credit score could drop over 100 points
The New York Federal Reserve says more than 2.2 million borrowers have already seen their credit scores fall by over 100 points since October 2024, when negative credit reporting started up again. In the first few months of 2025, over 8% of borrowers entered serious delinquency.
Warren says that kind of damage isn’t easy to shake. A bad credit score, she warns, can follow you for years, raising interest rates, making it harder to get a mortgage, and even leading to job rejections. “Nearly half of all employers now run credit checks,” she said. “Damaged credit can cost someone a job opportunity.”
The restart could catch many by surprise
The collections process is moving quickly, and many people may not even be aware they’re in default. Preston Cooper, a fellow at the American Enterprise Institute, noted that because the pause lasted five years, some borrowers may have lost track of their loan status or simply weren’t informed about the next steps.
Borrowers like 42-year-old Holly Bechard have said they aren’t opposed to paying what they owe, but they’re frustrated. “I do have a problem with the lack of transparency and all of the false promises,” she said.
New repayment plans could make things worse
On top of all this, Warren is also pushing back against the House’s latest spending bill. The bill would roll multiple income-driven repayment (IDR) plans into just two, with fewer benefits and higher monthly payments for many borrowers. She says that change could push even more people toward default.
There’s already a serious backlog. Nearly 2 million people are still waiting for their IDR applications to be processed, according to the Department of Education. Meanwhile, President Biden’s SAVE plan, which was designed to lower payments and shorten the time to forgiveness, is currently tied up in court.
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Social Security garnishment is paused—For now
The Department of Education has confirmed that Social Security garnishment is on hold—for now. Wage garnishment, however, is expected to resume sometime this summer.
Trump’s education secretary, Linda McMahon, says restarting collections is about restoring fairness. “Debt doesn’t go away,” she said. “It gets transferred to others.”
But for millions of borrowers already facing rising costs in nearly every part of life, that reasoning may feel cold. As Warren puts it, this isn’t just about paying back loans—it’s about how long the consequences could linger.
