Student Loan Delinquencies Surge as Collections Resume, Raising Broader Financial Concerns

The delinquency rate for student loan balances has surged following the resumption of federal loan collections, raising concerns over broader financial instability, according to a recent report from the Federal Reserve Bank of New York.

After a nearly five-year pause, the U.S. Department of Education restarted collection efforts on defaulted federal student loans on May 5, following the expiration of a pandemic-era payment moratorium and a subsequent one-year grace period that ended on September 30, 2024.

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As of the first quarter of 2025, nearly 8% of total student debt was reported as 90 days or more past due, a sharp increase from less than 1% the previous quarter. Approximately 42 million Americans hold federal student loans, with 5.3 million borrowers in default and an additional 4 million in late-stage delinquency.

Borrowers in default now face wage garnishment, tax refund seizures, and reductions in Social Security payments. These measures could reduce monthly disposable personal income by $3.1 billion to $8.5 billion, according to research by JPMorgan.

The New York Fed warned that the financial pressure of resuming student loan payments could lead to “spillover effects,” causing borrowers to fall behind on other obligations such as credit cards and auto loans. “Now they have to make these payments again on their student loans, so that could put pressure on their ability to pay these other loans,” researchers noted.

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“Part of the reason that some people are adding to credit card debt is because they have student loan payments — that’s the spillover effect,” said Ted Rossman, senior industry analyst at Bankrate.

The New York Fed stated it will continue to monitor for potential ripple effects across other forms of consumer credit.