The Rise of Late Payment & Defaults in Early 2025
After years of paused payments and temporary protections, millions of federal student loan borrowers are now facing a harsh financial reality. With rising rates of default, past-due balances, and the return of involuntary collections, many are only just now discovering they’ve fallen behind.
How Did We Get Here?
From March 2020 to September 2023, most borrowers received relief through the CARES Act forbearance, which paused federal student loan payments in response to economic hardships caused by the COVID-19 pandemic.
To ease the transition back into repayment, the Department of Education introduced the “On-Ramp to Repayment” initiative from October 1, 2023, through September 30, 2024. During this period, borrowers were expected to resume payments, but those who missed payments were protected from negative consequences like adverse credit reporting, loan delinquency, and default.
Unfortunately, poor communication from loan servicers and the Department of Education left many borrowers unaware that their loans had entered repayment. Because the on-ramp protections prevented the usual signs of delinquency, borrowers often didn’t realize they were missing payments. Once those protections ended, many borrowers found themselves months behind.
Now, with the on-ramp period over, these borrowers are facing serious consequences: massive drops in credit scores and even loan default. As of May 2025, the Department of Education has also resumed involuntary collections on defaulted loans, adding yet another unexpected burden for borrowers already struggling to catch up.
The Shocking Statistics
Before diving into the numbers, it’s essential to understand the difference between “delinquent” (or “past due”) and “defaulted” student loans. A student loan is considered past due or “delinquent” if it’s even one day late. Once a loan is 90 days past due, it will be reported to the major credit bureaus. After 270 days of being past due (nine months), the loan is placed into default status.
Roughly 5.3 million borrowers (12.4%) are currently in default on their student loans.
According to an analysis conducted by TransUnion and presented at their 2025 Financial Services Summit, the impact on borrowers’ credit scores has been dramatic. Over 20.5% of borrowers are now 90 or more days past due—a drastic increase from 11.5% prior to the CARES Act.
Average Drop in Credit Score by Credit Tier
- Super Prime (credit score of 800+) – 175 points
- Prime Plus (720-799) – 121 points
- Prime (660-719) – 99 points
- Near Prime (621-659) – 64 points
- Subprime (620 and below) – 42 points
While delinquency rates have increased nationwide, the highest concentration of delinquency is clustered in southern states. A study by The New York Fed Consumer Credit Panel/Equifax found seven states with conditional, borrower-level delinquency rates above 30 percent:
- Mississippi – 44.6%
- Alabama – 34.1%
- West Virginia – 34.0%
- Kentucky – 33.6%
- Oklahoma – 33.6%
- Arkansas – 33.5%
- Louisiana – 31.8%
Meanwhile, only five states have delinquency rates below 15 percent:
- Illinois – 13.7%
- Massachusetts – 14.0%
- Connecticut – 14.5%
- Vermont – 14.7%
- New Hampshire – 14.8%
The same study also highlighted a troubling rise in delinquencies across nearly all age groups, except for borrowers aged 18-29:
| Age Group | Delinquency Rate Q1 2020 | Delinquency Rate Q1 2025 | Change |
| 18-29 Years | 15.1% | 13.7% | -1.4% |
| 30-39 Years | 17.1% | 22.9% | +5.8% |
| 40-49 Years | 21.3% | 28.4% | +7.1% |
| 50-59 Years | 21.4% | 25.9% | +4.5% |
| 60+ Years | 19.8% | 25.0% | +5.2% |
The Penalties of Default
As student loan defaults rise, it’s crucial for borrowers to understand the serious consequences of defaulting on their loans. Penalties include:
- Wage garnishment of up to 15%
- Withholding of tax refunds and other federal benefit payments
- Ineligibility for further deferment or forbearance
- Inability to select or change repayment plans
- Restriction on receiving additional federal student aid
These penalties create significant financial hardship, and default can be overwhelming for borrowers to navigate without detailed knowledge.
Solutions to Default
Fortunately, borrowers in default have avenues to regain good standing. While paying off the loan in full is the quickest way to resolve default, this is often an unrealistic option for most borrowers. More accessible solutions are available, though–loan consolidation and loan rehabilitation.
- Loan consolidation: Consolidation allows borrowers to exit default by combining their defaulted student loans with another eligible student loan into a new Direct Consolidation Loan. To qualify for this option, the borrower must agree to repay the new Direct Consolidation Loan under an Income-Driven Repayment (IDR) plan.
- Loan rehabilitation: This is a 9-month process in which the borrower works with their loan holder to establish a reasonable monthly payment amount. The payment is based on both income and expenses, unlike a traditional IDR plan. After making nine voluntary, affordable monthly payments, the borrower will be taken out of default. While the process takes longer than simply consolidating, the advantage of rehabilitation is that it removes the record of default from the borrower’s credit history. However, in most cases, rehabilitation can only be used once to exit default.
Moving Forward from Default
The rising rates of delinquency and default are concerning, but for borrowers facing these challenges, it is essential to know that you are not alone in them, and more importantly, resources are available to help you navigate this. The most important steps are to commit yourself to taking action and to creating a plan. By understanding your options, you can regain control and move toward long-term financial stability.
