Student loan borrowers facing wage garnishment are willing to put off credit card payments

Core Insights - Delinquent federal student loan borrowers are prioritizing student loan payments over other unsecured debts due to the threat of wage garnishment and involuntary collections [1][2] - A TransUnion survey indicates that borrowers are willing to neglect credit card and personal loan payments to ensure student loans, auto loans, and mortgage payments are made [2][3] - The resumption of collections for defaulted student loans is expected to significantly impact borrowers, with potential penalties including up to 15% of disposable wages being garnished [6][5] Borrower Behavior - Most borrowers who miss payments cite affordability issues or prioritizing other bills as reasons for delinquency [3] - The survey of 508 student loan borrowers reveals a shift in payment hierarchy, with student loans now being prioritized over unsecured personal loans and credit cards [2][3] Credit Trends - Delinquency rates on other types of credit, particularly credit cards and personal loans, have increased among Americans behind on federal student loans [4] - The New York Fed reported that credit card balances reached $1.21 trillion in Q2, marking a 5.87% increase from the previous year, indicating broader financial strain [4] Policy Context - The Trump administration's announcement in April to resume collections on defaulted student loans has heightened concerns among borrowers [6] - The Biden administration's previous attempt to cancel a portion of student loans for millions was halted by the Supreme Court, adding to the ongoing challenges faced by borrowers [7]