In a troubling development for America’s 43 million student loan borrowers, delinquency rates have doubled since the pandemic payment pause ended, leaving millions at risk for severe financial consequences. Here’s what you need to know about this growing crisis.
The Shocking Numbers Behind the Student Loan Delinquency Surge
According to a recent Washington Post article titled “Delinquency rates soar as borrowers slow to repay student loans”, approximately 1 in 5 people in repayment are now 90+ days past due on their student loans. Education Department data shows that approximately 4 million federal student loan borrowers are currently delinquent—almost double the number from February 2019, before the pandemic.
The spike in missed payments comes after the expiration of the three-year pandemic payment pause. When payments officially resumed in October 2023, the Government Accountability Office found that nearly 10 million borrowers missed their first payment, signaling the beginning of this crisis.
Credit Score Consequences Reaching 200-Point Drops
Many borrowers have received a shocking wake-up call in the form of plummeting credit scores. Forbes reports that some borrowers have seen drops of up to 200 points after the Department of Education’s temporary “on-ramp” grace period ended and servicers began reporting delinquencies to credit bureaus.
One borrower, as detailed in The Washington Post, discovered his delinquency status only after his bank notified him of a 140-point drop in his credit score. Despite immediately paying what he owed and enrolling in automatic payments, the damage to his credit report remained.
Why Are So Many Borrowers Struggling to Pay?
Higher education experts had warned that getting borrowers back into the habit of making payments after a five-year break would be extremely difficult. The Biden Administration’s “ON-RAMP” program, a 12-month grace period designed to ease borrowers back into repayment, ended in September 2023, but many borrowers still struggled to adjust to having this significant expense back in their monthly budgets.
Economic Pressures Creating Impossible Choices
The resumption of student loan payments coincides with a period of elevated inflation and higher living costs, creating a perfect storm for household budgets. According to Forbes analysis, many borrowers who managed to stay afloat during the pandemic now find themselves forced to choose between paying for essentials like housing and groceries or making their student loan payments.
Relief Programs Blocked by Legal Challenges
The situation has been exacerbated by legal challenges to various relief efforts:
- The SAVE income-driven repayment plan has been blocked by court orders
- Biden’s broader student loan forgiveness plan was struck down by the Supreme Court
- The “Fresh Start” initiative for defaulted borrowers ended on September 30, 2024
These setbacks have left borrowers who were counting on relief suddenly responsible for their full loan balances, plus accumulated interest, as reported by The Washington Post.
What’s Next for Student Loan Borrowers?
If current trends continue, these delinquencies could become defaults, triggering serious consequences not just for borrowers but for educational institutions as well. Schools with high Cohort Default Rates (CDRs) face significant penalties:
- Schools with CDRs exceeding 15% must wait 30 days before disbursing federal loans to students
- Institutions with CDRs over 30% are required to establish a Default Task Force that must:
- Identify factors causing high default rates
- Establish measurable objectives to improve the default rate
- Specify actions to enhance student loan repayment, including counseling on repayment options
These delay periods for federal loan disbursements could create serious cash flow challenges for institutions and their students.
Reduced Support During Critical Period for Default Prevention
Adding to borrowers’ challenges, the current administration appears to be scaling back support services at the Federal Student Aid office to reduce costs—precisely when more resources are needed for default prevention. In an internal email uncovered by The Washington Post, department officials were instructed to determine “bare minimal services needed” and to “let go of the Cadillac service and opt for the Toyota.”
Institutional Response Becoming Critical
This alarming trend has made default prevention a critical priority. Educational institutions may need to create Default Cohort Task Forces to ensure additional outreach and communication to delinquent borrowers, even before they’re required to do so by federal regulations. Without proper intervention at both the federal and institutional levels, the consequences could be severe for both borrowers and schools.
Options for Struggling Borrowers
Despite these challenges, borrowers have some options to avoid the worst outcomes:
- Contact your loan servicer immediately if you’re falling behind
- Consider income-driven repayment plans (when applications resume)
- Explore deferment or forbearance options for temporary relief
- Reach out to your alma mater’s financial aid office, as many institutions are establishing resources specifically for repayment assistance
- File a complaint with the Consumer Financial Protection Bureau if you believe your servicer made errors
The Broader Economic Impact
The student loan crisis extends beyond individual borrowers, potentially affecting the entire economy and higher education system. With millions directing significant portions of their income toward student debt rather than consumer spending, housing, or retirement savings, the ripple effects could be substantial and long-lasting.
As The Washington Post and Forbes both highlight, delinquency rates continue to climb, prompting policymakers, advocacy groups, and financial experts to call for more permanent solutions to address what has become one of America’s most persistent financial challenges.
Is Your Institution Prepared to Address Rising Student Loan Delinquencies?
With delinquency rates doubling, now is the time to take proactive steps. McClintock & Associates can help you review and strengthen your institution’s default prevention plan, ensuring you’re equipped to support borrowers and reduce financial risk.
Schedule a consultation today to safeguard student success and institutional stability.
