Approximately one-third of all federal student loan borrowers are one payment away from default. That may happen as soon as July 2025. Unfortunately, recently published data highlight that deadly trend. An estimated 5.8 million borrowers are currently 90 days delinquent on their loan payments. And the delinquency rate for these borrowers has skyrocketed to 31%. This represents a huge increase from the 20.5% reported just last February of this year.
The picture has changed drastically for the worse in just the last few years. As of February 2020, the national delinquency rate stood at just 11.7%. Delinquency rates are increasing at the fastest rate ever. This worrisome uptick indicates that federal student loan borrowers are finding it harder and harder to make their payments on time—an alarm that defaults could soon be widespread.
When any federal student loan borrower defaults on their student debt, the implications are dire. Their credit scores suffer greatly, with the average score dropping by 60 points. Over one fifth of these borrowers who are currently 90+ days delinquent were once considered “prime” or “super prime” credit risks. This abrupt step marks a tragic turn in their economic conditions. After just one month of missed payment, less than 2% of borrowers are able to keep their excellent credit rating.
Recent estimates suggest that about 1.8 million borrowers will default by this July. A million more will likely default in August, with two million close behind in September. Borrowers don’t enter default status until they are 270 days overdue on their payments.
The US Department of Education resumed collections on defaulted federal loans less than two months before the sharp rise in delinquency rates. This troubling decision has a lot of folks concerned. Borrowers in financial distress would incur punitive measures like wage garnishment and other collection actions upon default.
“With over 200 million credit-active consumers in the US, the 5.8 million affected borrowers make up only a small percentage,” – Joshua Turnbull, senior vice-president and head of consumer lending at TransUnion.