Rise in Student Loan Defaults Highlighted by New York Fed

The New York Fed disclosed on Tuesday that a significant number of student loan borrowers defaulted earlier this year, which may spark a new wave of delinquencies.

In the fourth quarter of 2025, approximately 1 million borrowers defaulted, and an additional 2.6 million did so in the first quarter of this year, according to researchers from the Fed.

They noted that the percentage of delinquent student loan balances is returning to levels seen before the pandemic, as loan payments resume following a three-year pause.

The Department of Education reported that around 7.7 million borrowers were already in default before the pandemic hit.

Interestingly, the average age of a borrower in default is about 40 years old, and many had overdue loans even before COVID-19 disrupted payment schedules. There’s a notable concentration of these borrowers in the southern regions of the U.S.

During the pandemic, over 40 million people holding federal student loans experienced a suspension of payments and a freeze on interest rates, with no payments required for more than three years. This freeze was extended multiple times.

Although this moratorium officially ended in September 2023, a transitional “off-ramp” period allowed the Department of Education to refrain from reporting overdue payments to credit bureaus.

The fallout from missed payments can be felt for a while; specifically, it takes 270 days for a missed payment to officially go into default. Consequently, the fourth quarter of 2025 was the first timeframe in which new defaults began appearing on credit reports.

Fed researchers cautioned that a new wave of defaults may be looming as borrowers, previously under the now-defunct SAVE plans, prepare to restart their payments.

In a recent development, a federal appeals court halted the “Valuable Education Savings” plan instituted during the Biden administration. As this plan works its way through the legal system, around 7 million borrowers are anticipating payment forgiveness starting in the summer of 2024.

While researchers believe the most significant wave of delinquencies may have passed, they warn that if the economic distress resulting from these defaults impacts families’ credit situations, the repercussions could continue to affect the overall credit landscape.

Moreover, borrowers who default on student loans tend to struggle with repayment deadlines for other debts as well, further compounding their financial challenges.