Don’t Let Student Loan Debt Cost You Your Paycheck

If you’re overwhelmed by student loan debt you can’t afford to repay (or maybe even forgot about), you’re not alone. As federal student loan repayments resume for the first time in three years, millions of borrowers are struggling to keep up.

With the risk of wage garnishment, growing balances, and credit damage, many people are feeling afraid and confused about what is happening.

You may be wondering:

• - What if I can’t afford to make my student loan payments?
• - Will they take my paycheck if I can’t pay my student loans?
• - Is there a way to prevent or stop wage garnishment?
• - What can I do if the student loan debt on my credit report isn’t correct?

The good news: There are ways to protect your income, negotiate a payment plan you can afford, dispute possible errors that could be costing you money, and protect your financial future.  

This guide breaks it all down and gives you clear next steps to take control and prevent or stop wage garnishment. We’ll also share what you need to know for both federal and private student loans.  

The Student Loan Landscape: What You Need to Know in 2025

As of early 2025, more than 43 million borrowers are once again required to pay their federal student loans after a long COVID-era pause. The Department of Education confirmed that collections – including wage garnishments and tax refund seizures – will restart for those who default.

But not all loans are treated the same.

Federal Student Loans vs. Private Student Loans

It’s critical to understand which type of loan you have, because how you handle repayment and disputes can vary significantly.

If you’re not sure what type of loan you have, check your loan dashboard at studentaid.gov or review your 3-bureau credit report through CreditBuilderIQ.

A Note on Lenders vs. Loan Servicers

It’s important to understand that your lender is not usually your loan servicer. Loan servicers are companies that are responsible for the management and repayment of your student loans and will collect payments and report your information to the credit bureaus.  

So even though the money for your student loans comes from the lender, you will mostly be communicating with your loan servicer. It’s also important to know that your loan servicer can change, and probably will at some point.  

How Student Loan Debt Is Affecting Your Finances

Now that student loans payments have resumed, borrowers are seeing a hit to their pocketbooks. A recent study by IDIQ, the parent company of CreditBuilderIQ, found that consumers’ monthly payments have increased by 23% this year compared to the same time last year, now averaging $800 a month.

Not only has the average monthly payment gone up, but consumers’ amount of debt has increased as well. IDIQ reported consumers’ average debt has risen to $60,440 this year, up significantly from $49,429 average consumer debt last year.  

"The number of student loan defaults is projected to exceed 10 million borrowers within months." – Jeff Mandel

“The Department Education began collecting on student loan debt again on May 5^th, and anyone with a student loan who has not made a repayment needs to pay serious attention. The Department of Education is taking aggressive action and has begun garnishing wages on 196,000 borrowers. Approximately 5.3 million more are about to receive similar notices. The number of student loan defaults is projected to exceed 10 million borrowers within months,” said Jeff Mandel, president of monetization at IDIQ.  

“Your lower credit scores will adversely impact multiple areas in your life, including but not limited to qualifying for affordable mortgage, car and personal loans, apartment rentals, insurance premiums and even getting a new job." – Jeff Mandel

“If this doesn’t get your attention,” said Mandel, “then understanding how the material reduction in your credit score as a result of your loan default should”.  Mandel continued by adding, “Your lower credit scores will adversely impact multiple areas in your life, including but not limited to qualifying for affordable mortgage, car and personal loans, apartment rentals, insurance premiums and even getting a new job.  When you combine this mounting issue with the surging average consumer debt in which almost 50% of consumers are living paycheck to paycheck and Americans now carry an average approximately $6,500 in outstanding credit card debt, we have a serious economic challenge on our hands. This data underscores the urgent need for access to better financial tools, education, and support to help consumers manage their student loans and credit while protecting their long-term financial health."

What Happens If You Miss Payments on Your Student Loans?

Once you are 90 days past due on a federal student loan, the loan becomes delinquent. For most federal student loans, if you go 270 days without paying, your loan goes into default. Both of these situations can have a major impact on your finances and credit.  

Delinquent Student Loans

Even if you have only missed a few payments, going into delinquency on your student loans can have a major negative impact on your credit score.  

According to recent reports, a new student loan delinquency could reduce your credit score by up to 177 points, depending on your credit score prior to the new delinquency.  

For many people, this could mean your credit score will drop into a “subprime” credit score level (typically under 620), making it significantly more difficult to qualify for loans, credit lines, or even some jobs.

Defaulted Student Loans

If you go into default on your federal student loans, your income may be at risk.

Once in default, the government doesn’t need a court order to collect on the debt. They can:

• - Garnish your wages, taking up to 15% of your disposable pay  ‍
• - Seize your tax refund ‍
• - Intercept Social Security benefits
• - Report the default to all three credit bureaus, which negatively impacts your credit score

For private student loans, default timelines and penalties vary; but they can also include lawsuits, judgments, and garnishment (if the lender wins in court).

According to recent reports, about 5.3 million federal student loan borrowers are now in default, and an additional 4 million borrowers are delinquent by more than 90 days.

But this doesn’t have to be your story. Even if you’re already behind, you still have options to avoid wage garnishment and negotiate a realistic plan.

Step-by-Step: How to Stop Wage Garnishment from Student Loan Debt

If you’re already behind on your student loan payments, or know you will be soon, it’s critical to act now.

Here are some steps you can take to protect your paycheck and negotiate an affordable repayment plan.

Step 1: Contact Your Loan Servicer Immediately

This step applies whether your student loan is federal or private. Let them know you’re experiencing financial hardship and ask what repayment relief may be available.  

For federal student loans, this could include:

• - Temporary forbearance or deferment
• - Enrollment in an income-driven repayment (IDR) plan
• - Access to new programs like the SAVE plan, which could lower your payment significantly

For private loans, you’ll need to ask your lender directly about hardship programs or settlement options.

Step 2: Explore Income-Driven Repayment (IDR) Plans

If your student loans feel unmanageable, an IDR plan could significantly reduce your monthly payment.

The Department of Education offers several IDR plans, which can reduce monthly payments to as low as $0/month in some cases. Use the loan simulator from StudentAid.gov to estimate your new loan payment.  

These plans may also offer loan forgiveness after 10–25 years, depending on your situation.

You can apply for IDR plans at StudentAid.gov. But if your loans are already in default, you’ll need to get out of default first.

Step 3: Rehabilitate or Consolidate to Get Out of Default

If your federal student loan is already in default, there are a couple ways you can get your loan out of default and back in good standing.  

• - Loan Rehabilitation: This solution typically lets you make a number of on-time payments (sometimes as low as $5–$10) over a specific period to restore your loan to good standing. ‍
• - Loan Consolidation: This option lets you combine your loans into a new Direct Consolidation Loan and choose an IDR plan to resume repayment immediately.

Both options can stop wage garnishment and can reverse the default status, helping you protect your income and your credit score.

Private loans don’t typically offer rehabilitation. If you’re in default, you may need to negotiate directly with the lender, consider debt consolidation, or seek legal help.

Step 4: Request a Hearing if Wage Garnishment Is Threatened

If you receive a notice that your wages will be garnished, don’t panic. You can request a hearing within 30 days of receiving the notice.

During the hearing, you can:

• - Prove financial hardship
• - Provide documentation of unemployment, disability, or caregiving responsibilities
• - Propose an alternative repayment plan

This can delay or stop the garnishment process while you negotiate a solution.

The Hidden Dangers: Inaccurate Student Loan Reporting and Fraud

One of the most overlooked risks for borrowers is inaccurate information on your credit report, especially when it affects the total amount you owe or your monthly payments.  

Common student loan reporting errors can include loans showing as delinquent during forbearance, incorrect or missing payments, duplicate loan entries, or even fraudulent student loans.  

Inaccurate Student Loan Reporting

Inaccurate reporting of student loan information to credit bureaus is not uncommon.  

A recent class action lawsuit alleges that the major student loan servicer Nelnet repeatedly miscalculated student loan borrowers’ monthly repayment amounts and provided inaccurate payment information to credit bureaus.  

These errors can make it look like you owe more than you do, and if left uncorrected they can increase your loan balance, trigger wage garnishment based on false data, and negatively impact your credit score.

Student Loan Fraud

A recent IDIQ study found that fraud related to student loans increased nearly 500% in 2024 compared to the previous year.  

So far in 2025, IDIQ is reporting a nearly 200% surge in calls into its Fraud Restoration Team related to possible student loan fraud compared to the same time frame last year. This staggering increase stems from confirmed cases of fraud, inaccurate student loan information being reported to the credit bureaus, and forgotten or overlooked loans.  

“We’re seeing not just confirmed fraud, but also incorrect information being reported to credit bureaus and forgotten loans causing serious financial consequences." – Michael Scheumack

“This is a clear signal that consumers need to be more vigilant than ever,” said Michael Scheumack, chief innovation officer at IDIQ. “We’re seeing not just confirmed fraud, but also incorrect information being reported to credit bureaus and forgotten loans causing serious financial consequences. Even individuals who believe their student loans are in good standing – or think they don’t have any – could be at risk.”

How to Dispute Student Loan Errors on Your Credit Report

You have the legal right to dispute inaccurate or outdated student loan information on your credit reports, and with the right tools, the dispute process is easier than ever.

Step 1: Review Your 3-Bureau Credit Report

Not all credit information is reported to every credit bureau. That is why it’s essential to check your full credit report from all three major credit bureaus: Equifax, Experian, and TransUnion.

With CreditBuilderIQ, you get instant access to your three-bureau credit reports and scores, and updated reports every month so you can track what inaccuracies have been corrected.  

Even better? Our Credit Report Review tool does the heavy lifting for you by analyzing your report and flagging items that may be inaccurate and need your review.

Step 2: Dispute Potential Inaccuracies

Once you have reviewed your credit report and determined which items appear to be inaccurate, it’s time to dispute them.  

This involves writing dispute letters and sending them directly to the credit bureaus, and then tracking the responses and actions taken by the bureaus and the creditors. The dispute process can be tedious, but the impact to debt owed and credit score changes are well worth it. Learn more about how to dispute information on your credit report.

We created the CreditBuilderIQ Dispute Hub to make the dispute process as easy as possible.

Our Dispute Hub helps you:

• - Generate personalized dispute letters
• - Send letters directly to the right bureaus
• - Track your dispute progress in one place

Correcting student loan errors on your credit report could help lower your reported balance, stop incorrect collections, and protect your credit score.

Federal and Private Loans Require Different Strategies, But You’re Not Alone

Whether you’re dealing with federal or private student loans, here’s what to remember:

• - Don’t wait – take action before your loans default. ‍
• - Income-driven repayment plans can lower your monthly payments significantly.
• - Federal borrowers can use rehabilitation or consolidation to stop wage garnishment.
• - Private loan borrowers must work directly with lenders, but options may still exist. ‍
• - Inaccurate loan reporting can inflate your balance, and should be disputed immediately.

Start Taking Control Today with CreditBuilderIQ

Student loan debt doesn’t have to wreck your financial future. With the right tools, guidance, and dispute support, you can stop collections, lower your payments, and fix costly errors.

Join CreditBuilderIQ and get the help you need to start addressing your student loan debt.  

As a CreditBuilderIQ member, you will get instant access to:  

• - Your three-bureau credit report and scores
• - Our smart Credit Report Review technology to help you review your report for possible errors
• - Our Dispute Hub to help you quickly and easily dispute inaccurate information and track your dispute process
• - And more member benefits to help you build your credit faster

Still have questions? Learn more about how CreditBuilderIQ works.