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Student Loan Defaults on the Rise: Over 4 Million Borrowers at Risk of Default
ByAinvest
Thursday, Aug 21, 2025 5:30 pm ET1min read
Over 4 million federal student loan borrowers are at risk of default, with the number of delinquent borrowers higher than pre-pandemic levels. Many borrowers struggled to resume payments after the COVID-19 payment pause ended, leading to a faster delinquency rate than any other debt type. Default can result in garnishment of federal benefits or wages, and can negatively impact credit scores.
The Federal Reserve Bank of New York reported a significant surge in student loan delinquencies following the end of the COVID-19 payment pause and the resumption of reporting to credit agencies. According to the New York Fed's Quarterly Report on Household Debt and Credit, the number of student loans transitioning into serious delinquency rose sharply in the second quarter of 2025 [2].Over 4 million federal student loan borrowers are now at risk of default, with the number of delinquent borrowers exceeding pre-pandemic levels. This rapid increase in delinquency rates is the fastest among all debt types. The inability of many borrowers to resume payments after the payment pause ended has contributed to this alarming trend [2].
The consequences of default can be severe. Borrowers may face garnishment of federal benefits or wages, and their credit scores can be negatively impacted. The Consumer Financial Protection Bureau (CFPB) has been actively addressing issues in the student loan market, including the recent enforcement action against Navient for its widespread failures and illegal practices [1]. However, the recent surge in delinquencies underscores the ongoing challenges faced by student loan borrowers.
The CFPB's actions, such as banning Navient from federal student loan servicing and requiring it to pay $120 million in redress for its failures, aim to protect borrowers and deter similar misconduct in the future [1]. Despite these efforts, the rising delinquency rates highlight the need for further systemic reforms and support for student loan borrowers.
References:
[1] https://www.consumerfinance.gov/about-us/newsroom/cfpb-bans-navient-from-federal-student-loan-servicing-and-orders-the-company-to-pay-120-million-for-wide-ranging-student-lending-failures/
[2] https://www.aol.com/student-loan-delinquency-rates-highest-194942537.html
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