[UNITED STATES] Americans now collectively hold a record $18.2 trillion in debt, spanning credit cards, mortgages, auto loans, home equity lines of credit, and student loans, according to the latest quarterly report on household debt from the Federal Reserve Bank of New York. Despite the overall debt burden, most Americans are managing their payments—except in one key area: student loans.
The recent spike in student loan delinquencies highlights the financial strain many borrowers face as pandemic-era relief measures expire and economic conditions remain challenging. Although inflation has eased from its peak, elevated prices continue to squeeze household budgets, complicating debt repayment for millions—particularly younger borrowers, who often carry large student loan balances relative to their income.
“Transition rates into serious delinquency have leveled off for credit card and auto loans over the past year,” said Daniel Mangrum, a research economist at the New York Fed. “However, 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.”
After nearly five years of paused payments, the share of student loans at least 90 days delinquent surged to nearly 8% in the first quarter of 2025—up from less than 1% a year earlier, the report found.
Economists warn this trend could have wider implications for the economy. Delinquent borrowers often see their credit scores damaged, limiting their access to mortgages, auto loans, and rental housing—potentially reducing consumer spending in key sectors. Student loans remain the second-largest category of household debt, trailing only mortgages.
Although the delinquency rate is expected to rise modestly, it remains similar to levels seen in 2020, researchers noted during a press call. Still, they emphasized in a blog post that “the ramifications of student loan delinquency are severe.”
Roughly 42 million Americans hold federal student loans, with about 5.3 million currently in default, according to the U.S. Department of Education. An additional 4 million are more than 90 days past due, considered in “late-stage delinquency.”
Advocates for student debt reform argue that the current repayment system is ill-equipped to handle widespread financial hardship. While income-driven repayment plans are available, many borrowers find the system confusing or remain unaware of their options. The Biden administration has introduced new programs to ease repayment burdens, but some policy experts and advocates call for more comprehensive relief, including broader loan forgiveness.
Among borrowers currently required to make payments—excluding those in school, deferment, or forbearance—nearly one in four are behind, the New York Fed found. “For many, this had grave consequences for their credit standing,” researchers said.
On May 5, the Education Department resumed collection efforts on defaulted federal student loans, including wage garnishment and withholding of tax refunds and Social Security benefits.
This resumption has reignited debate over student loan policy, with lawmakers and consumer advocates calling for stronger oversight of loan servicers and enhanced borrower protections. Borrowers struggling to stay current are urged to consider options like consolidation or temporary forbearance to avoid default and its long-term financial toll.
The federal government had suspended collections since March 2020. After payments resumed in September 2023, the administration provided a year-long “on-ramp” to protect borrowers from credit consequences. That grace period ended on Sept. 30, 2024, and delinquencies began appearing on credit reports early this year.
“This has been like a car crash unfolding in slow motion,” said Ted Rossman, senior industry analyst at Bankrate. “Now that those collections are resuming, the clock is running out.” Both FICO and VantageScore have reported declines in average credit scores since February, driven largely by an uptick in student loan delinquencies.
The New York Fed warned in a March report that resuming collections could lead to credit score drops of up to 171 points for delinquent borrowers. A separate analysis by TransUnion found that those who recently defaulted saw their scores fall by an average of 63 points, with super prime borrowers—those with scores above 780—losing as much as 175 points.
“The impact that it showed to these people’s credit scores is pretty staggering,” said Matt Schulz, chief credit analyst at LendingTree. “That is something that is going to make things harder for people for a long time,” he added. “There is very little in life that is more expensive than having crummy credit.”
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