Key points
- New federal data shows that nearly 12 million borrowers are now delinquent or in default, more than a quarter of the federal student loan portfolio.
- 5.3 million people remain in default since before the pandemic pause, while the rest have fallen into delinquency since the pause ended.
- As collections return, many borrowers may not realize they face wage garnishment, tax refunds, and other consequences starting next spring.
Nearly 12 million federal student loan borrowers are now in delinquency or default, a level of nonpayment never before seen in their student loan portfolio. After a national payment pause of three and a half years, followed by a pause in collections for an additional two years, the payment landscape bears little resemblance to the one that existed before the pandemic.
Latest numbers from the Ministry of Education (Introduction to the New America) Putting more than a quarter of the federal portfolio in serious trouble.
The sheer size of the collection raises a key concern: How many of these borrowers know they are delinquent, and how many of them are unaware that a collection return could affect their wages, tax refunds, or federal benefits as early as next spring?
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How many student loan borrowers are in default?
The new data shows a complex picture of repayment difficulties that varies widely between groups of borrowers. The bulk (about 5.3 million Borrowers) were already in default before the payment pause began in March 2020 and remains in place today. These loans never returned to good standing during the moratorium and are now in first place in renewed collection actions. Although the number seems large, it is very close to historical default rate levels.
last 1.3 million Borrowers had previously defaulted, managed to get out of it either during the moratorium or shortly after, and now have defaulted again. Their return to delinquency is an early sign that many households have not fully recovered from the financial turmoil caused by the pandemic.
The third group (approx 3 million People) borrowed before the moratorium and did not default at any time. They are now delinquent for the first time. For many, repayment has resumed with rising costs of living, limited savings, and incomes that may not have kept pace with inflation. Or they may not even know that their loans have moved back into repayment.
The last part (approx 2.3 million Borrowers) received their loans during the moratorium itself. Many of them have only recently entered repayment. For this group, the shift to monthly payments has collided with a complex service environment and they may also not realize that payments are required.
Together, these categories create a population of approximately 12 million borrowers who face the possibility of default.
What does deviation and negligence mean?
A borrower becomes delinquent after missing a payment, and federal loans typically enter delinquency after about nine months of nonpayment. But in practice, many borrowers do not feel the impact of delinquency immediately. Notices may be missed, unfamiliar loan servicers may be involved, and repayment may be confusing for new borrowers.
The real impact arrives when the deviation becomes long-term. Once a loan defaults, the federal government can ask employers to withhold a portion of the borrower’s wages. Tax refunds (including refunds such as the Earned Income Tax Credit) can be forfeited. Federal payments such as Social Security benefits can also be garnished to recover unpaid debts. These measures were frozen during the pandemic but have resumed, and borrowers will start to feel it very soon.
This timeline is important. Borrowers who are currently delinquent could default in the coming months, meaning the first enforcement actions could take place during the next tax filing season.
Borrowers may not know they are at risk
And based on what we’ve seen with declining initial credit reports, millions of borrowers may not realize they’re falling behind. Transfers from one servicer to another, transferring borrowers, changing contact information, and years of communication being paused have left many borrowers unsure of where to check their status.
There are also borrowers who are confused about what’s changing with student loans and repayment plans. Between the expiration of the SAVE plan, changes with the advent of the One Big Beautiful bill, and lack of communication with the service, confusion leads to inaction.
For borrowers who have emerged from default, returning to delinquency may come as an unwelcome surprise. Many may have taken advantage of Fresh Start or a similar program, only to find themselves back in trouble.
What student loan borrowers need to do now
If you have federal student loans (or if you have family members with loans), here’s what you can do now.
Check your federal loan account through StudentAid.gov Or your server’s website and check if there are any overdue payments. Update your contact information, since many delinquent borrowers are missing notices due to a change of address or email during the pandemic.
If you’re already late, call your provider and ask about payment options. Income-based repayment can lower monthly payments, and consolidation or rehabilitation may help already distressed borrowers. Servicers can also clarify whether a loan is at risk of being transferred to collections.
For families, it may be helpful to talk with students or recent graduates who borrowed during the hiatus. Many may not realize that they are actually expected to make payments.
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Editor: Colin Greaves
The post 12 Million Student Loan Borrowers At Risk of Default appeared first on The College Investor.
