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Student Loan Delinquency Rate Doubles As Payments Resume
After the three-year pandemic pause and resumption of federal student loan repayments, delinquency rates have doubled in just a few months, according to Education Department data obtained by The Washington Post. Millions of borrowers are struggling to keep up with their monthly bills now that payments are required again.
Roughly four million federal student loan borrowers are already behind on payments, a sharp spike in distress that has alarmed policymakers and advocates. The Post reports that the proportion of borrowers missing payments is roughly twice the pre-restart level, illustrating the rocky transition back into repayment. This surge in delinquencies raises fears that many borrowers could eventually default on their loans if these trends continue.
Why Have Student Loan Delinquencies Jumped So Dramatically?
Student loan delinquencies have skyrocketed for several reasons. First, the expiration of the pandemic-era payment freeze – and its gradual phase-out via a one-year on-ramp – meant that by late 2024, borrowers could no longer skip payments without consequences. Beginning in October 2023, interest started accruing on federal student loans again, and required payments officially returned. This was a financial shock for many after three-and-a-half years of no bills. Savings accumulated during the pause have dwindled, and household budgets are tighter due to inflation, making it harder to allocate money for student debt.
Loan servicer staffing and communication problems have compounded the challenge. The Post notes that some servicers struggled to handle the influx of borrower inquiries when payments restarted. In the autumn of 2023, one significant servicer even sent bills late or with errors, which was confusing. Borrowers faced long hold times seeking help adjusting repayment plans or re-enrolling in auto-debit. These logistical snafus left some people missing payments unintentionally simply because they couldn’t get timely information or assistance.
Critically, many borrowers had been counting on debt relief that didn’t materialize. The Biden administration’s broad student loan forgiveness plan was struck down by the Supreme Court in 2023, leaving those borrowers still on the hook for their full balances. Borrowers who expected $10,000 or $20,000 of their debt to be wiped out suddenly faced the return of monthly payments on the same balances as before, only now with higher interest. This dashed hope, and rising living costs have left a segment of borrowers financially unprepared to resume payments, driving up delinquency rates.
Borrowers describe tough choices and mounting stress. Some have prioritized essentials like rent, groceries, or childcare over their student loans, risking delinquency. Others who remained unemployed or underemployed after the pandemic don’t have the income to cover their loan bills. Even those on income-driven repayment plans with reduced payments have felt the squeeze. One borrower told The Post that after covering basic expenses, “there’s nothing left for student loans” – underscoring how stretched finances have become for millions.
The net effect is stark: Far more people are missing payments now than historically. This spike translates to about four million people behind on their student debt, illustrating the depth of the repayment struggle unfolding across the country. Officials warn that if delinquency continues to climb, it could lead to a wave of defaults later this year when severely delinquent loans (270-plus days past due) are slated to be classified in default and subject to collections.
Mounting Financial Pressures Due To Student Loan Repayment
The current student loan repayment crisis unfolds against a backdrop of historic student debt burdens and broader economic strains. Even before Covid-19, default and delinquency were pervasive. As of early 2021, roughly one in five student loan borrowers was in default on a federal loan, according to the Pew Charitable Trusts.
The pandemic pause on student loan payments temporarily hid the distress – defaults were effectively zero from 2020 to2023 – but it didn’t erase the underlying financial challenges. Now that payments have resumed, those challenges are reappearing with a vengeance. When the on-ramp period ended and loans again faced penalties for non-payment, federal data showed that two out of every five borrowers hadn’t been able to pay their bills, according to Student Loan Sherpa, a student loan advice website. This staggering figure underscores how many Americans are financially stretched to their limits.
Economists point out that resuming student loan payments after a period of high inflation and interest rates has put added pressure on household finances. Everyday expenses are up, and many people were leaning on credit cards and savings during the pause. They must juggle those obligations with a new (or returning) monthly loan payment. “The resumption of student loan payments comes as consumers continue to face sky-high interest rates and elevated prices for everyday goods,” one analyst noted to Fox Business, adding that this extra bill can “deliver a financial shock to millions” of Americans.
In other words, the timing could hardly be worse for borrowers’ budgets. The Federal Reserve Bank of New York reported a rise in credit card delinquencies among younger borrowers in late 2023, and researchers partly blame the restart of student loan payments for squeezing those already living paycheck to paycheck.
Beyond the immediate cash flow crunch, the return of penalties for missed payments is wreaking havoc on some borrowers’ credit profiles. During the payment pause and on-ramp, missed federal loan payments were not reported to credit bureaus. But starting in fall 2024, servicers began reporting delinquencies again. That led to sharp credit score drops for many unwitting borrowers. Some borrowers saw their credit scores plunge by as much as 200 points once their loans were marked delinquent, and some were unaware they had even missed payments until debt collectors or credit alerts notified them.
As I previously reported in a post on Forbes, the credit fallout is an especially painful consequence of delinquency: a lower credit score can raise the cost of other loans and insurance and even make it harder to rent an apartment—further hampering borrowers who are already financially vulnerable. The end of the on-ramp means borrowers’ credit reports are no longer shielded from student loan missteps, amplifying the stakes of falling behind.
Borrower advocates and financial experts are also raising alarms about rising monthly payments that started to hit in 2025, adding to the strain. Many borrowers enrolled in the Biden administration’s new SAVE income-driven repayment plan, which offers reduced payments (and even $0 payments for some low-income borrowers). However, that program’s future is in jeopardy. “Borrowers find themselves in a really difficult position, and facing tremendous amounts of uncertainty,” says Michael Lux, an attorney and founder of The Student Loan Sherpa, adding that “millions of borrowers signed up for the SAVE repayment plan, and the vast majority of them should expect to see their payments increase. SAVE as we know it is unlikely to survive.”
If SAVE disappears, borrowers could be forced into older plans with much higher payments. Financial planner Alex Beene told Newsweek that if today’s benefits are eliminated, monthly bills will revert to pre-2020 levels, often hundreds of dollars more.
Even if SAVE remains intact, payments are set to rise for many borrowers due to routine income recertification. (During the pause, borrowers didn’t have to update their income, but now those enrolled in income-driven plans must recertify, which could increase their calculated payment if their earnings grew.) And if inflation-adjusted incomes haven’t kept up with inflation-adjusted expenses, even a normal payment could feel very high if SAVE were eliminated. Multiplied across millions of borrowers, that kind of increase represents billions of dollars extra each month that households would have to divert to student loans instead of other needs or savings.
The combination of heavier debt loads, higher payments, and an unforgiving economy creates a perfect storm. Borrowers who fell behind during the on-ramp period now face the reality of collections activity resuming. The Education Department has said that by early 2025, it will begin reporting most delinquent accounts to credit bureaus and that loans will enter default status by late 2025 if they remain unpaid, per The National Association of Student Financial Aid Administrators. This means consequences like wage garnishment and tax refund seizures could kick in for the first time since 2019 for those who can’t get back on track.
Consumer advocates are calling for more permanent fixes to the student loan system – such as more affordable repayment options, expanded loan forgiveness, or even rethinking interest accrual – to prevent millions of Americans from falling into a debt trap. They argue that the current situation, where a considerable share of borrowers is immediately delinquent once payments resume, shows that the system was broken. However, given the uncertain future of the Education Department, the likelihood of those fixes being implemented in the near term is low.
For now, struggling borrowers are urged to explore all available options rather than go delinquent. Federal programs like income-driven repayment can cap payments based on income, but are currently in limbo given the Education Department’s freeze; forbearance or deferment can temporarily pause payments (though interest may still accrue). Financial counselors also suggest prioritizing and documenting communication with loan servicers – despite the frustrations – to enroll in manageable plans. Don’t ignore the problem is the standard advice since delinquency and default carry long-term costs that can far exceed the loan balance.
Student Loan Outlook: Bracing For Potential Defaults
The doubling of student loan delinquency rates is a red flag for the economy and tens of millions of households. It signals that even after a lengthy pause, underlying affordability problems persist for many borrowers. The fact that about 40% of borrowers couldn’t make the first payment when bills came due – compared to around 25% who missed payments pre-pandemic – illustrates the depth of the challenge. Many borrowers are in a worse position than before Covid-19 relief due to higher living costs, lost pandemic support, and accumulated loan interest.
Unless conditions improve, experts worry the next phase could be a wave of student loan defaults in late 2025, when today’s delinquencies mature into defaults. Prior to the pandemic, over a million borrowers defaulted on federal student loans on average every year. The current delinquency surge could push those numbers even higher.
Defaulting on a student loan has severe consequences – it can ruin credit for years, lead to aggressive collections, and even grow the balance through fees. It’s essentially the worst-case scenario for borrowers and lenders alike. Policymakers are, therefore, keen to prevent delinquencies from snowballing into defaults.
On Capitol Hill, the divergent approaches to the student debt crisis add to borrowers’ uncertainty. Republican lawmakers have proposed budget measures to roll back income-driven repayment subsidies, arguing that generous plans like SAVE overburden taxpayers. Analysts estimate the GOP’s budget framework (if enacted) could increase the average borrower’s monthly payment by about $200 by tightening income exemptions. That would disproportionately hit lower-income borrowers – for example, someone earning $30,000 a year might be required to pay at least $50 a month under the proposed rules, whereas, under SAVE, they pay $0.
Such changes are far from certain, but they reflect a policy climate in which borrowers face a whiplash between relief and austerity. On the other hand, progressive lawmakers and advocates continue to push for renewed cancellation efforts or permanent refinancing options to ease the burden.
The immediate concern for the four million and counting borrowers already behind on their student loans is finding a way to catch up and avoid deeper delinquency. The Department of Education has encouraged struggling borrowers to apply for programs like the Fresh Start initiative (which can remove a default from credit records) and to consider consolidation or rehabilitation options if they’ve already defaulted. Nonprofit credit counselors also suggest holistic financial checkups – looking at budgets, cutting unnecessary costs, and possibly seeking additional income – to accommodate the student loan payment each month.
In the coming months, the trajectory of student loan delinquency will be an important indicator of financial stress in American households. The plight of millions of student loan borrowers has vaulted back into the spotlight, reminding the nation that the student debt crisis didn’t disappear during the payment pause – it was merely dormant. With delinquencies surging and four million people behind on payments, that crisis is roaring back to life, demanding attention and solutions.
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