The never-ending student loan crisis in America has now reached a critical juncture. There are now 42.8 million borrowers as of 2024 with a student loans debt of $.177 trillion. It would be an understatement to say that there will be ripple effects as the Department of Education gears up to resume debt collections on defaulted federal student loans starting May 5, 2025. Perhaps, the biggest collateral damage will be the American workplaces. This unique intersection of student loans, debt collection and the American workforce brings to the surface a fresh perspective on what it means for today’s employees, employers, and the economy.
The trap of student loans debt collection
Student loan debt is no longer a personal finance issue. It’s now a systemic economic challenge poised to reshape the American workforce. The average federal student loan borrower owes $38,375, a figure that disproportionately impacts Black borrowers ($26,000 on average) compared to their white counterparts ($25,000). Women, holding nearly two-thirds of the total debt, face an average balance of $31,276, compared to $29,270 for men. The wide disparity goes to show how student loans exacerbate inequality, particularly for marginalized groups.
A 2023 WorkRise Network report found that 20% of graduates with over $20,000 in debt forgo advanced degrees due to financial constraints, further limiting their career mobility.
There are 5.3 million borrowers currently in default. These are individuals who have missed payments for over 270 days. On top of it is another 4 million delinquent by 91 to 180 days. The Department of Education’s decision to restart student loan debt collections through the Treasury Offset Program is a significant game-changer. This program will allow the government to withhold tax refunds, federal salaries, and even Social Security benefits.
As we know now, wage garnishments will soon be a reality by late summer this year. For the 10 million student loan borrowers, this could mean a quarter of all federal student loans entering debt collections.
A strained relationship between student loans and workplaces
The imminent threat of debt collection is already swinging at full force towards the American workplace. More and more employees are now burdened by student loans and face extreme financial stress that impacts their productivity, mental health and career choices. A 2023 WorkRise Network report found that 20% of graduates with over $20,000 in debt forgo advanced degrees due to financial constraints, further limiting their career mobility. An overly large number of these students are now pushed into higher-paying but less fulfilling jobs. This has skewed the labor market, leaving critical sectors severely understaffed in recent years.
On top of it, only 5% of U.S. workers had access to employer-sponsored student loan repayment benefits in 2025. In fact, those in the top 10th percentile (typically high earners) are far more likely to receive them than low-wage earners. There are companies like Aetna and Fidelity among the 8% of American employers offering such benefits. When it comes to low-wage earners, many of whom are Black, Latino or without degrees, these benefits remain elusive.
The resumption of debt collection adds another layer of pressure. Wage garnishment, which can legally drain off a portion of earnings without a court order, threatens financial stability for defaulted borrowers, particularly those living paycheck to paycheck. Betsy Mayotte, president of The Institute for Student Loan Advisors, notes that loan rehabilitation—making nine consecutive on-time payments—can help borrowers exit default, but this option is a one-time deal. For older borrowers, nearly 40% of whom over 65 are in default, garnishment of Social Security benefits could be catastrophic.
Economic and social fallout of student loans debt collection
The economic implications are stark. Student loan debt reduces consumer spending, delays homeownership (51% of renting borrowers postpone buying homes), and stifles entrepreneurship. The WorkRise Network estimates that loan forgiveness could boost income by $3,000 over three years and cut delinquency by 24%, but the current administration has explicitly ruled out mass forgiveness, arguing that taxpayers shouldn’t bear the cost of “irresponsible” loan policies. Education Secretary Linda McMahon has emphasized that “debt doesn’t go away; it gets transferred to others,” framing collections as a taxpayer protection measure.
Critics, however, argue this approach ignores the structural issues baked into the system. Black and Latino borrowers face higher default rates due to lower family wealth and discriminatory labor market outcomes. Non-degree completers, who make up a significant chunk of defaulters, often lack the earning power to repay loans taken for credentials they never earned. The inability to discharge student loans in bankruptcy further traps borrowers, making debt collection a blunt tool that may deepen poverty rather than resolve it.
Workplaces are also caught in the crossfire. Financially stressed employees are less engaged, with 86% of workers with education debt reporting that their degree wasn’t worth the toll on their well-being, according to a 2023 CNBC survey. Employers face higher turnover and recruitment challenges as workers prioritize jobs with loan repayment benefits or higher salaries to offset garnishment. Small businesses, already strained by economic uncertainty, may struggle most, as low-wage employees face the brunt of collections.
A path forward
The Department of Education is rolling out a “robust communication strategy” to notify defaulted borrowers via email, urging them to explore income-driven repayment plans or loan rehabilitation. Tools like an AI assistant and extended call center hours aim to ease the transition, but critics like Natalia Abrams of the Student Debt Crisis Center argue that resuming collections before processing income-driven repayment applications is premature. The SAVE plan, which capped payments at 5% of income, remains blocked by courts, leaving borrowers with fewer affordable options.
Employers could play a bigger role. Expanding student loan repayment benefits, particularly for low-wage workers, would alleviate financial stress and boost retention. Tax incentives for companies offering such benefits could accelerate adoption. On the policy front, advocates push for reforms like bankruptcy discharge for student loans or targeted forgiveness for low-income borrowers, though these face political hurdles.
For now, student loan borrowers should act fast. Contacting the Default Resolution Group at StudentAid.gov before May 5 could prevent wage garnishment or withheld benefits.
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