Student loan delinquencies are on the verge of reaching unprecedented levels, with more than 9 million borrowers at risk of seeing their credit scores plummet in the first quarter of this year. This alarming trend comes from fresh data unveiled by the Federal Reserve Bank of New York in its latest biennial report, which examines student loan debt loads, delinquencies, and associated credit score impacts.
The report, known as the 2025 Student Loan Update, offers a snapshot of student loan activity post-Covid-19 pandemic. It reveals that an estimated 15.6% of federal loans were likely overdue at the end of last year, marking a new record with over $250 billion in delinquent debt impacting 9.7 million borrowers. These findings are based on Federal Student Aid data available through September 30, 2024, with further data expected after March 31.
Historically, new student loan delinquencies have significantly affected credit scores, with subprime borrowers losing an average of 87 points and those with excellent credit, or superprime borrowers, experiencing a steep 171-point drop. The pandemic initially offered relief for millions through stimulus checks and payment pauses, allowing many to reduce their balances. However, some loans were mired in uncertainty as plans for student loan forgiveness by the Biden administration faced legal hurdles.
The 3.5-year payment hiatus concluded in September 2023, yet an additional one-year “on-ramp” provision protected borrowers from negative repercussions of missed payments, ending on September 30, 2024. The New York Fed’s findings highlight a concerning trend: numerous borrowers are not repaying their loans at pre-pandemic rates, amplifying the risk of negative credit score impacts.
Since the resumption of interest and payments in fall 2023, some borrowers have managed to decrease their balances, according to the New York Fed. However, a substantial number of borrowers have seen their balances remain static or grow, a situation exacerbated by administrative forbearance linked to legal challenges against the Saving on a Valuable Education repayment plan.
The latest data suggests that student loan debt is becoming more burdensome, especially as the Trump administration’s decisions—such as dismantling the Department of Education and temporarily suspending income-driven repayment applications—could further hinder borrowers’ debt management efforts. “It’s the ‘you can’t get blood from a stone’ idea: That money’s got to come from somewhere,” remarked Ted Rossman, senior industry analyst at Bankrate. “People may be falling behind on other debts because of the student loan burden.”
Though student loan borrowers constitute a relatively small portion of overall consumer spending, Wednesday’s report underscores that some Americans’ finances are becoming increasingly precarious, particularly during a time of heightened economic uncertainty and recession fears.
Your World Now
The financial landscape for student loan borrowers is rapidly evolving, and the repercussions extend beyond individual credit scores. For households carrying significant educational debt, the strain could lead to budgeting challenges, forcing difficult decisions about which bills to prioritize. With the potential impact on credit scores, borrowers may face higher costs for future loans or encounter difficulties securing housing or employment that requires credit checks.
Communities could also feel the ripple effects. As more individuals allocate larger portions of their income to student loan payments, discretionary spending may decline, affecting local businesses and economic growth. Additionally, the broader financial instability could contribute to increased demand for social services, as households struggle to manage their finances amidst a backdrop of economic uncertainty and potential policy shifts by the Trump administration.
