Student loan delinquencies have spiked sharply in early 2025 after a five-year pandemic-related reporting pause ended, according to new Federal Reserve Bank of New York data released Tuesday.
Nearly 8% of total student debt was reported as 90 days or more past due in the first quarter of 2025, dramatically higher than the less than 1% reported a year earlier.
“Transition rates into serious delinquency have leveled off for credit card and auto loans over the past year,” said Daniel Mangrum, research economist at the New York Fed. “However, the first batch of past due student loans reported in the first quarter of 2025 resulted in a large jump in seriously delinquent borrowers.”
Among borrowers required to make payments, nearly one in four (23.7%) fell behind during this period. The Education Department officially restarted collection efforts May 5, which includes wage garnishment, tax refund seizures, and Social Security payment interceptions for about 5.3 million defaulted borrowers.
The impact varies widely by geography. Seven states reported delinquency rates above 30%, with Mississippi highest at 44.6%, followed by Alabama (34.1%) and West Virginia (34%). States with the lowest rates include Illinois (13.7%), Massachusetts (14%, and Connecticut (14.5%).
Financial experts warn of severe consequences for affected borrowers. TransUnion found that consumers who recently defaulted saw credit scores fall by an average of 63 points. For super-prime borrowers — those with scores above 780 who became seriously delinquent — scores dropped by as much as 175 points.
“For many, this has grave consequences for their credit standing,” the New York Fed researchers said.
Matt Schulz, chief credit analyst at LendingTree, told CNBC: “There is very little in life that is more expensive than having crummy credit.”
The collection restart contrasts with Biden-era policies that canceled over $140 billion in debt for 5 million borrowers, despite the Supreme Court’s rejection of broader forgiveness plans.
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