Late Payments & Defaults On Student Loans Are Surging: What To Know

Background: From Forbearance to Repayment

Between March 2020 and September 2023, federal student loan borrowers benefited from emergency forbearance under the CARES Act. During this period, loan payments were suspended, interest rates were set to 0%, and collections were halted in response to the COVID-19 pandemic.

To facilitate a smoother transition back into repayment, the U.S. Department of Education implemented the "On-Ramp to Repayment" initiative from October 1, 2023, through September 30, 2024. Under this policy, borrowers who missed payments during that time were shielded from the usual repercussions of delinquency - including negative credit reporting and default.

However, widespread confusion and poor communication from loan servicers resulted in many borrowers being unaware that repayment had resumed. Because the on-ramp protections suppressed the typical signs of delinquency, borrowers often did not realize they had fallen behind on their payments. As the on-ramp period concluded in late 2024, millions learned for the first time that they were behind on payments, with some even falling into default.

Delinquency and Default Trends

Understanding the current environment requires distinguishing between delinquency and default:

• A loan is considered delinquent if a payment is missed, even by one day. After 90 days, the delinquency is reported to credit bureaus.
• A loan enters default after 270 days of nonpayment (approximately nine months).

As of mid-2025, data indicates significant increases in both delinquency and default:

• 5.3 million borrowers, or 12.4% of all federal student loan borrowers, are currently in default.
• Over 20.5% of borrowers are more than 90 days delinquent—up from 11.5% before the CARES Act moratorium.

At the 2025 TransUnion Financial Services Summit, analysts reported notable declines in credit scores across all borrower credit tiers:

Geographic and Demographic Disparities

The impact of rising delinquency rates is not distributed evenly across the United States. A study by the New York Fed Consumer Credit Panel/Equifax identified seven states with borrower-level delinquency rates exceeding 30%:

Conversely, only five states reported delinquency rates below 15%:

The same report also revealed that delinquency is rising among nearly all age groups, except for borrowers aged 18–29, whose rates slightly declined.

Consequences of Default

 Borrowers entering default are subject to a range of financial penalties that can have lasting impacts. These include:

• Wage garnishment of up to 15% of disposable income
• Seizure of tax refunds and federal benefits through the Treasury Offset Program
• Loss of eligibility for further deferment, forbearance, or federal student aid
• Ineligibility to select or change repayment plans
• Credit damage that can affect future access to loans, housing, and even employment

Default status not only imposes financial strain, but can also create significant barriers to economic mobility.

 Options for Borrowers in Default

Despite the challenges, there are pathways available for borrowers to exit default and regain good standing:

 1. Loan Consolidation

Borrowers may consolidate their defaulted student loan into a new Direct Consolidation Loan. To do so, they must agree to repay the loan under an Income-Driven Repayment (IDR) plan. This option is often the fastest method to exit default but does not remove the record of default from credit reports.

2. Loan Rehabilitation

This program requires borrowers to make nine voluntary, affordable payments within ten months, calculated based on income and expenses. Upon successful completion, the default status is removed from the borrower's credit history. Rehabilitation is a one-time opportunity and typically takes longer to complete, but it offers the benefit of credit repair.

Next Steps

The expiration of federal student loan protections has led to a significant increase in delinquency and default rates across the country. Many borrowers, impacted by communication breakdowns and unclear policy transitions, are now facing serious consequences. However, viable solutions remain available.

For borrowers with delinquent or defaulted loans, or at risk of delinquency, early intervention is essential. Understanding the full scope of available options and engaging with loan servicers or financial counselors can help mitigate long-term damage and support a return to financial stability.