Student Loan Delinquency Rates: A Growing Crisis

The landscape of student loan repayment is facing significant challenges as delinquency rates surge. Recent data paints a concerning picture of borrowers struggling to meet their obligations, raising questions about the long-term consequences for individuals and the economy.

The Rising Tide of Delinquency

According to data released by the Federal Reserve Bank of New York, the rates of student loan non-payment between April and June climbed sharply. A concerning 12.9 percent of debt is now subject to "serious delinquency." The Federal Reserve Bank of New York's Center for Microeconomic Data released its Quarterly Report on Household Debt and Credit on Wednesday, which found the number of student loans transitioning into serious delinquency, or 90 days past due, rose "sharply" in the second quarter of 2025. The report found that 10.2 percent of all student loans are now seriously delinquent, up from 8 percent in the first quarter and 0.8 percent for the second quarter of 2024. "Transition into early delinquency held steady for nearly all debt types except for student loans," the report reads. "Student loans saw another uptick in the rate at which balances went from current to delinquent due to the resumption of reporting of delinquent student loans." This data underscores the increasing difficulty borrowers face in managing their student loan debt.

In California, the nonpartisan California Policy Lab (CPL) released an analysis showing that 11% of California student loan borrowers are 30+ days late on paying back their loans. “The share of borrowers who are 30+ days late on paying back their student loans surged during the first two quarters of 2025,” explains Evan White, Executive Director of the California Policy Lab’s UC Berkeley site, and a member of the research team that created and maintains the California Credit Dashboard. Delinquencies in the Central Valley are above 16% but delinquencies in the large urban metros (Bay Area and Los Angeles) are closer to 10%.

The End of Pandemic-Era Relief

Federal student loan payments were largely suspended starting in March 2020 as part of a pandemic-era pause initiated under the Biden administration. However, those protections have ended under President Donald Trump, and collections have resumed.

The Department of Education reactivated its collections process in May, warning that borrowers who remain in default without making arrangements risk wage garnishment and a hit to their credit ratings. "Resuming collections protects taxpayers from shouldering the cost of federal student loans that borrowers willingly undertook to finance their postsecondary education," the department said at the time. "This initiative will be paired with a comprehensive communications and outreach campaign to ensure borrowers understand how to return to repayment or get out of default."

Defining Default and its Ramifications

The mark for being in default is 270 days unpaid. Once in default, students face active collection efforts by the federal government. The Department of Education predicted in April that there could be almost 10 million borrowers in "default in a few months." "When this happens, almost 25 percent of the federal student loan portfolio will be in default," the agency said.

An average of 6.24% of student loan debt is in default at any given time. Federal student loans default 270 days after a missed repayment, almost nine (9) months. Before that, student loan payments are considered delinquent. After 90 days of delinquency, the late payment is reported to the three major national credit bureaus. Most people are late making a student loan payment at least once. In 2023, 59% of defaulted borrowers had first defaulted at least 5 years earlier. 0.59% of student loan borrowers are 90+ days delinquent but not yet in default.

Consequences of Default

The consequences of not paying off education debts can be far-reaching. Adem Selita, co-founder of The Debt Relief Company, told Newsweek, "The consequences of not paying student loans back can be quite severe. The Department of Education is not a creditor you want coming after you."

Financial and Legal Repercussions

Upon default, the entire outstanding balance of a borrower’s student loan as well as any interest becomes due. "You will also have the negative impact of delinquent payments on your credit report," Selita said. "You'll be marked as late and late payments can stay on your credit report for up to 7 years. This will negatively impact your score as 35 percent of your credit score as derived from your payment history." Defaulted student loans are reported to credit bureaus. As a result, you may not be eligible to receive other types of loans, such as home and auto loans. It can take years to undo the damage.

Wage garnishing and withholding tax refunds are other ways government and private lenders may collect on defaulted loan payments. A lender can arrange to have your employer withhold a portion of each paycheck to be paid directly to the lender. In order to collect garnished wages, lenders may sue you in court. You may then also be charged for any court costs or other fees related to the lawsuit.

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Loss of Benefits and Ineligibility

A borrower who has defaulted on a federal student loan loses eligibility for future benefits. You lose benefit eligibility. You may be ineligible to buy and sell certain assets.

Educational Barriers

Depending on the type of institution you attended, a school may withhold academic transcripts. It is legal for colleges to do this but not required. Schools may withhold your proof of attendance.

Factors Contributing to Delinquency

Several factors contribute to the rising student loan delinquency rates.

Loan Amounts and Repayment Terms

One possible reason for higher delinquency rates among older borrowers is that they typically owe a larger monthly payment on their student loans. The average Boomer with student debt owes $150 per month in student loan payments, which is 2.4 times that of the average Millennial ($62/month) and 5.8 times that of the average Gen Zer ($26/month). These loans may have paid for their own education or for their child’s. (note: These averages include all student loan payments for each borrower, whereas the California Credit Dashboard shows average monthly payments per loan. Both include a substantial number of borrowers with $0 payments because they are in income-driven repayment programs.

Regional Economic Disparities

The student loan delinquency crisis is also more pronounced in more rural, lower-income regions of the state.

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Impact of Loan Forgiveness Programs

The high delinquency rates are happening even though average monthly student loan payments are much lower now than before the pandemic. An average student loan borrower owes $66 per month in student loan payments, which is down 37% since the first quarter of 2020, when it was $105. This could be due to many factors, including that a larger share of borrowers are now in income-driven repayment plans and some borrowers had some student debt forgiven by the Biden administration.

Borrowers at High Risk of Default

Arts and Humanities majors who attended non-selective schools are the most likely to default on their student loans. Department of Education surveys of recent graduates show that 21.8%of Black/African American student loan borrowers have defaulted on a student loan. 14.7% of student borrowers who attended a private, for-profit college defaulted within three years of beginning repayment.

Potential Solutions and Future Outlook

While the current situation is concerning, there are potential avenues for borrowers to regain good standing and manage their debt.

Loan Rehabilitation and Consolidation

Loan rehabilitation may remove the record of default from the borrower’s history but loan consolidation does not. In order to qualify for loan rehabilitation, borrowers must apply within 20 days of the next due date. A loan may only undergo rehabilitation once; if the borrower defaults again on the same loan, rehabilitation will not be possible. Consolidating loans joins multiple loan debts, effectively giving the borrower one large loan to pay off instead of many smaller ones.

Loan Forgiveness and Discharge

Student loan forgiveness or loan discharge may be possible with defaulted loans, such as discharges due to death or fraud.

Repayment Strategies

It is possible to restore good standing, but it may take several months or years. Repay loans immediately and in full - this is unreasonable for most student borrowers.

Trends in Student Borrowing

One potential bright spot is that new college students in California seem to be taking on less educational debt over the past year. The average amount of new student loans was $13,200, a 23% reduction from the same time last year when the average was $17,100. Many factors could be driving this trend, including students choosing more affordable schools, but the repayment struggles of their older peers may be on their minds as well. (Note: student loan originations are highly seasonal so the analysis uses four-quarter moving averages.

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