A record number of borrowers have fallen far behind on their federal student loan payments, another pressure point among millions of increasingly stretched American consumers.
Recently released Education Department data showed that by the end of last year, 7.7 million borrowers had defaulted on $181 billion in federal student loans. Three million other loan recipients were at least three months late on their payments.
That’s the highest combined rate of serious delinquency and default since the government began its data reporting system nearly a decade ago. Of the nearly 43 million recipients with federal student loans, roughly a quarter are significantly behind.
And the problem is likely to grow. Last week, after years of legal limbo, a federal appeals court ordered the end of a generous Biden-era repayment plan known as SAVE. That decision will soon force nearly seven million borrowers to begin paying loan bills — with interest still accrued for the last seven months — that had been suspended while the litigation played out.
The stark delinquency data is the latest sign of distress from those on the downside of what economists call a “K-shaped economy”: one in which the richer get richer, while the financial health of many lower-income households declines. Unemployment is increasing, gas prices have spiked and people are stretching to manage higher costs for food, medical care, housing and other essentials.
That has led to more unpaid debts. The rates of serious delinquencies are climbing on credit cards, mortgages and auto loans, according to the Federal Reserve Bank of New York’s latest analysis of household debt.
Delinquent debts affect credit scores, which have declined — especially for younger Americans — in part because of missed student loan payments. Those lower scores can affect consumers’ ability to rent a home or obtain auto and mortgage loans.
People who are maxed out “face scary choices,” said Winston Berkman-Breen, the legal director of Protect Borrowers, a consumer advocacy group. “Maybe you either stop paying other debts that don’t have such draconian collections, or you change your family’s grocery budget, or stop saving for the future. That can have quiet intergenerational wealth concerns, like the ability to save for a home.”
The government has aggressive ways to collect on defaulted student loans, including garnishing wages and seizing tax refunds, but it’s holding off on those — for now. In January, the Education Department reversed its plan to send out garnishment notices.
Involuntary collections will be paused, for an unspecified length of time, while the Trump administration “implements significant improvements to our broken student loan system,” said Nicholas Kent, the department’s under secretary.
On Thursday, the Trump administration announced plans to move management of the $1.7 trillion federal student loan portfolio to the Treasury Department. The Education Department was “never intended to operate what would be the fifth-largest commercial bank in the United States,” the two agencies said in a joint announcement.
The plan is likely to face legal challenges. “The last thing student loan borrowers need is more chaos from the federal government,” said Kyra Taylor, a staff attorney at the National Consumer Law Center.
The federal report on the high number of borrowers who are struggling with their payments confirmed what economists and student loan experts had long predicted: After the government lifted its pandemic-era student loan collection freeze in 2023 and resumed sending borrowers monthly bills, many people didn’t start paying again.
Today, the total tally of borrowers in default is roughly the same as it was in December 2019, shortly before the collection moratorium began, the Education Department noted in an online post about the data.
But the number of people teetering on the edge, or making no payments because their loans are still paused, is much larger than it was six years ago.
In late 2019, three million borrowers were a month or more delinquent on their loan payments, and just over six million had loans in deferment or forbearance, which temporarily halts collection. At the end of last year, more than four million people were a month or more behind, and 12 million — mostly those on the SAVE plan — had loans that were deferred or in forbearance.
Officials had warned that getting borrowers to resume payments after such a long timeout would be complex, but a turbulent legal and logistical landscape made the anticipated problems even worse.
Former President Joseph R. Biden Jr. tried to ease borrowers’ burdens with a mass debt forgiveness plan that would have wiped out $400 billion in loans. The Supreme Court killed that effort, ruling that the president had exceeded his authority.
He then introduced SAVE (Saving on a Valuable Education), an income-linked payment plan that cut many borrowers’ monthly bills in half and would forgive any remaining balance after 20 to 25 years of payment. But court challenges from Republican-led states doomed that effort, too.
Last week, four borrowers sued the Education Department in a last-ditch effort to preserve SAVE. Elizabeth Robeson, one of the plaintiffs, said the government’s ever-shifting repayment rules “forced millions of working Americans like me to live in a labyrinth with no clear exit.”
Ms. Robeson borrowed $12,000 in 1987 to pursue a graduate degree from the University of Mississippi. Because of interest and fees, that balance has ballooned to more than $90,000.
Under both SAVE and one of its predecessor repayment plans, low-income people like her could qualify for monthly payments as low as $0. Following those rules, she made more than 325 payments on her loans — far more than the 216 required to be eliminated through SAVE. The plan’s termination has jeopardized that relief.
Adding to borrowers’ woes is a troubled loan servicing system that relies on contractors to handle borrowers’ questions and collect payments. For many years, across multiple presidential administrations, government auditors have focused on glaring problems with those companies’ operations and oversight.
President Trump has tried to dismantle the Education Department, and the number of people working at the agency’s Federal Student Aid office plunged 45 percent last year, from more than 1,400 employees in January 2025 to fewer than 800 by December.
Citing “lack of staff capacity,” the agency stopped auditing the accuracy of its loan servicers’ borrower records and the quality of their customer service calls, according to a Government Accountability Office report released this month. Before the agency halted those audits, four of its five loan servicing contractors were failing to meet the department’s performance standards.
In a written response to the accountability office’s report, the Education Department said measuring loan servicers’ compliance “would not improve the financial health of the federal student loan portfolio.”
Millions of people enrolled in SAVE will now need to shift to other payment plans. Mr. Kent, the department’s under secretary, said the agency would provide guidance for that transition “in the coming weeks.”
Starting in July, new borrowers will have only two choices for repayment: fully repaying their loans on a fixed term of up to 25 years, or using a new income-linked plan called RAP (Repayment Assistance Program) that can stretch up to 30 years.
Most borrowers with existing loans will be able select one of those two plans or a Income-Based Repayment plan, which lets many borrowers shed their debts after 20 years.
Loan servicers are bracing for a fresh deluge of questions from confused borrowers.
“The resumption of payments after five years was always going to be a very, very bumpy ride,” said Scott Buchanan, the executive director of the Student Loan Servicing Alliance, an industry trade group. “And it has been.”
Stacy Cowley is a Times business reporter who writes about a broad array of topics related to consumer finance, including student debt, the banking industry and small business.
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