Student Loan Delinquencies Soar As 9 Million Borrowers Fall Behind

Forbes

27-03-2025

After a historic pause in payments, student loan borrowers face a harsh reality check. A new Federal Reserve Bank of New York study estimates that roughly 9.2 million Americans have fallen behind on their student loan bills since repayments have resumed​. This wave of delinquency – affecting about 43% of those required to make payments – marks a dramatic uptick that experts warn could surpass pre-pandemic levels. With more than $250 billion in student debt now delinquent, the fallout may only be beginning to unfold.
Federal student loan borrowers enjoyed a pandemic-era payment pause for nearly three years. During this time, no payments were required, and no delinquency was reported to credit bureaus. That relief ended in late 2023, followed by a 12-month on-ramp in which missed payments carried fewer penalties. That on-ramp expired on Sept. 30, 2024, and the bills are now due – with troubling results.
According to the New York Fed, roughly 9.7 million student loan borrowers became past-due on their bills once the Covid-era payment pause expired. By the end of the on-ramp period, 15.6% of federal student loan borrowers were behind on payments. In raw numbers, that's roughly 9 to 10 million people—far higher than the delinquency rate before the pandemic. As the Fed's report notes, this surge suggests delinquencies will exceed pre-2020 levels as they begin hitting credit reports.
The speed with which borrowers have fallen behind and the magnitude of the problem - nearly half of those supposed to resume payments have missed at least one bill - raises alarm bells. Delinquencies are "going to be a shock to the system," warns Rikard Bandebo, Chief Economist at VantageScore, who foresees a "student loan delinquency bomb" in the making. The sudden jump in non-payment underscores that many borrowers weren't financially or logistically prepared to resume payments after the long break.
One immediate consequence of the delinquency spike is a hit to borrower credit scores. For millions of Americans, the end of forbearance has flipped their credit reports from clean to blemished virtually overnight. As I wrote in a previous post on Forbes, student loan borrowers nationwide are seeing their credit scores plunging, sometimes by as much as 200 points. Given the importance of a strong credit profile for everything from mortgages to employment, such steep drops carry real repercussions.
Crucially, these negative marks only started to be reported in early 2025, after the 90-day grace window ended. According to Vantage Score, an estimated 2.3 million borrowers could see their scores fall below 600 – the subprime threshold – as new delinquencies are recorded​. 'According to data from Credit Karma, borrowers who formerly had the highest credit scores have seen the largest hits to their credit," notes Preston Cooper, a senior fellow at the American Enterprise Institute. 'Delinquent student loan borrowers with credit scores exceeding 720 saw an average 137-point drop in their scores, compared to a 71-point drop for borrowers with a credit score below 600."
Some borrowers were caught off guard by the credit fallout, and the resumption of reporting was jarring. As Bandebo of VantageScore notes, "a credit score is like a reputation; it takes a long time to build but can fall very quickly."​ Unfortunately for millions of borrowers, that fall is happening all at once.
The surge in delinquencies is not just a statistic – it carries serious personal and financial consequences. Missing payments for 90 days or more typically means a loan is considered in serious delinquency, and after 270 days, federal student loans enter default. Defaults can unleash a cascade of penalties. As the Pew Charitable Trusts warns, "failure to repay student loans can have serious financial consequences for borrowers, including collection fees; wage garnishment; money being withheld from income tax refunds, Social Security, and other federal payments; damage to credit scores; and even ineligibility for other aid programs."​ In other words, delinquency, and default can haunt borrowers long after the missed payments.
Already, collections activity is poised to resume. Without a court order, the federal government can seize up to 15% of a defaulted borrower's paycheck via administrative wage garnishment. It can also claim tax refunds or deny new federal student aid. These tools were largely suspended during the payment pause, but with defaults now rising, borrowers may face these harsh remedies again.
Credit score damage, however, remains the most immediate fallout. A dramatically lower credit score can raise the cost of borrowing from credit cards to car loans, making it harder to qualify for housing. The stakes are high for borrowers hoping to buy homes, finance vehicles, or even pass employer credit checks or apartment rental applications. Some 2.1 million borrowers who started in the prime credit tier could lose their prime status after a student loan delinquency hits, potentially locking them out of the best interest rates or any new credit.
The return of student loan payments was always likely to be bumpy, but the sheer scale of delinquency now emerging could raise red flags. The New York Fed analysts caution that the impact of these delinquencies could ripple through the credit system: "If missed payments come largely from those with lower [credit] scores, the aggregate impact will be smaller… However, if prime and superprime borrowers fell behind on student loan payments, the aggregate drop in credit standing… could be much larger". Early data suggest that delinquencies span across credit tiers, not just among the most financially distressed. For now, the numbers continue to tick up. Over 9 million borrowers are already marked past-due, and that tally could grow as more missed payments are reported through June 2025​.
The situation marks a startling reversal from the pandemic pause when distressed student loan borrowers saw their credit scores improve while payments were on hold. The coming months will reveal whether this delinquency surge is a temporary shock or the start of a more persistent student debt crisis. Either way, the message for student loan borrowers is clear: ignoring student loan bills has consequences once again, and they can be severe.