Debt Management and Settlement

• Seriously delinquent student loans surged in the first three months of 2025, harming the credit scores of millions of borrowers.
• Nearly one in four student loan borrowers were behind in their payments in the first quarter of 2025.
• Outstanding student loan debt grew slightly to $1.63 trillion in first quarter of 2025.

The share of student loan debt that is seriously delinquent, or more than 90 days past due, surged to around 7.7% in the first quarter of 2025, up from just 0.5% in the fourth quarter of 2024, according to the Federal Reserve Bank of New York.

The staggering jump follows a 43-month pause on student loan payments due to the pandemic. Starting in Sept. 2023, borrowers had a year to resume payments before being reported to credit bureaus, a grace period that expired in Oct. 2024.

"The first batch of past due student loans were reported in the first quarter of 2025, resulting in a large jump in seriously delinquent borrowers,” said Daniel Mangrum, research economist at the New York Fed, in a statement.

More than 20 million federal student loan borrowers weren't in repayment and 5 million had a zero dollar monthly payment as of end of the first quarter of 2025, according to The New York Fed.

Missing a monthly student loan payment makes the borrower delinquent and after 90 days of not making a payment, the borrower is at risk of default and will be reported to credit bureaus, according to Federal Student Aid.

More than 2.2 million student loan borrowers who became newly delinquent saw their credit scores drop by more than 100 points and more than 1 million saw drops of at least 150 points, The New York Fed said.

Credit scores can fall by as little as an average of 74 points to as much as 177 points, depending on the borrower's creditworthiness, The New York Fed said.

Seriously delinquent student loan borrowers with the best credit see the biggest drops.

Poorer credit scores means borrowers will have lower credit limits and higher interest rates for other debt.

"It is unclear whether these penalties will spill over into payment difficulties in other credit products," The New York Fed said.

• Missing student loan payments can lower credit scores by varying amounts depending on a borrower's credit.
• Reduced credit scores lower credit limits and raise interest rates.
• Student loan borrowers with the best credit who miss payments can see their scores drop the most.

Collections restarted on millions of defaulted student loans this month, but millions of other student loan borrowers are at risk of default and will see their credit scores lowered.

Starting in Sept. 2023, borrowers had a year to resume payments before being reported to credit bureaus, a grace period that expired in Oct. 2024. Due to the pandemic, requirements to make student loan payments paused for 43 months.

Missing a monthly student loan payment makes the borrower delinquent and after 90 days of not making a payment, the borrower is at risk of default and will be reported to credit bureaus, according to Federal Student Aid.

The impact is already widespread: More than 9 million student loan borrowers of the nation's nearly 43 million are expected to have seen "substantial declines" in their credit in the first three months of 2025, according to the Federal Reserve Bank of New York.

"This would result in reduced credit limits, higher interest rates for new loans, and overall lower credit access," The New York Fed said.

A student loan borrower who has missed a payment for 90 days or more can see their credit scores drop by as little as an average of 42 points to as much as 175 points, depending on their current creditworthiness, according to a May report from credit bureau TransUnion.

Student loan borrowers with the best credit are the hardest hit.

For example, a student loan borrower with "subprime" credit would see their credit score drop by an average of 42 points, but a "super prime" borrower would see their credit score fall 175 points.

Still, TransUnion said that it is mostly student loan borrowers with poor credit that are at risk of defaulting and will see their credit scores lowered.

Nearly 51% of student loan borrowers with "subprime" credit were at risk of seeing their credit scores drop for not making a payment for 90 days or more, TransUnion said.

Student loan debt and borrowers at risk of default have ballooned in recent years after payments have been missed and more loans have been taken out.

Around 21% of student loan borrowers were 90 days or more late on their payments in February 2025, compared with around 12% a year prior, TransUnion said.

And student loan debt grew to around $1.77 trillion at the end of 2024, up from around $960 billion in 2011, according to the Education Data Initiative.

There is now more student loan debt than credit card or auto loan debt, the Education Data Initiative said.

What happens if a student loan goes into default?

After 270 days of not making a student loan payment, the borrower goes into default, according to Federal Student Aid.

The first Trump administration paused the collections of defaulted student loans during the pandemic in March 2020, a pause the Biden administration extended. Collections then restarted on May 5, 2025 under the second Trump administration.

More than 5 million student loan borrowers haven't made a payment in more than 360 days, according to the Education Department.

Federal Student Aid said these are the consequences for defaulted student loan borrowers:

• Loan acceleration: The entire unpaid balance of your loan and any interest you owe will become due immediately.
• Wage garnishment: We can begin collecting on your loan by taking money from your wages.
• Treasury offset: Your tax refunds and federal benefit payments will be withheld and applied toward repaying your loan.
• Loss of options: You will no longer be able to change repayment plans and will no longer be eligible for temporary relief options such as deferment or forbearance.