Low-income Americans may soon face increased financial stress as the U.S. Department of Education resumes student loan collections under President Donald Trump’s administration. For the first time in nearly five years, borrowers who have defaulted on their loans could see their wages garnished or face other penalties.
Wall Street analysts are warning that this move could take a significant toll on consumers’ disposable income. According to JPMorgan estimates, the return of collections could pull between $3.1 billion and $8.5 billion out of consumers’ pockets each month, depending on interest rates and repayment plans. That drop could represent a 0.7% to 1.8% year-over-year decline in disposable income if the impact hits all at once in a single quarter.
This comes at a time when many households are already under financial strain due to the lasting effects of inflation and rising prices, along with Trump’s proposed tariff policies. These economic pressures may help explain why consumer sentiment has fallen to historic lows over the past two months, according to University of Michigan data.
Economists say the effects of resumed collections are likely to hit the most vulnerable groups hardest. Bank of America has warned that people with subprime credit—those already on shaky financial ground—could suffer the most. Student loan debt currently accounts for about 9% of all consumer debt, but if mortgages are excluded, that figure rises to 30%. In total, outstanding student loan debt reached $1.6 trillion by the end of March, an increase of $500 billion over the last ten years.
The New York Federal Reserve estimates that nearly one in four borrowers required to make payments is already behind. The number of delinquent borrowers jumped significantly in early 2025—from just 0.5% in the previous quarter to 8%. While being delinquent means a payment is late, defaulting on a loan means the payment has been overdue for a longer period and can result in more serious consequences like wage garnishment. If a large share of delinquent borrowers ends up defaulting, nearly a quarter of all student loan debt could become subject to collection.
JPMorgan notes that not all borrowers have wages or Social Security income that can be garnished, which could lessen the financial blow. However, for those who do resume payments due to collection efforts, their ability to spend on non-essentials may shrink.
President Trump has proposed cutting taxes on overtime and tips, which could help offset the impact for lower-income workers. Still, concerns remain that reduced discretionary income could slow down consumer spending—one of the main drivers of the U.S. economy.
Even so, not all analysts believe this will be a major blow to the broader economy. Some, like LPL Financial’s Jeffrey Roach, argue that higher-income earners who are less likely to have student loans have been sustaining consumer activity since the pandemic. That means the return of student loan payments may not shift the overall economic outlook too drastically.
“It’s unclear how big this impact will be,” said Roach. “But it’s likely that other issues like inflation and tariffs will continue to carry more weight than student loans in shaping the larger economic picture.”
