dailyloe.com – Approximately 3.6 million federal student-loan borrowers have defaulted in the last two quarters after the pandemic-era repayment pause ended. This data comes from the New York Federal Reserve.
The average age of newly defaulted borrowers is around 40, with many being 50 or older. Most of these borrowers reside in the South and were current on payments before the pandemic.
Defaulting on loans places these borrowers at risk of wage garnishment and the seizure of federal benefits, although these consequences are temporarily paused. Millions of borrowers may face difficulties if removed from a crucial affordable repayment plan later this year.
Fed researchers indicated that this increase in defaults was anticipated. Former President Joe Biden had paused student-loan payments during the pandemic.
Payments resumed in fall 2023, and missed payments were not reported to credit bureaus during a one-year ‘on-ramp’ period, which concluded in October 2024. The researchers noted, ‘We believe that the largest wave of student loan defaults has passed.’
However, additional borrowers may fall behind later this year due to actions by President Donald Trump, who eliminated the SAVE student-loan repayment plan. This plan was designed to provide borrowers with lower monthly payments.
The 7 million borrowers currently enrolled in SAVE must switch to a new plan starting in July. Fed researchers warned that delinquencies for these borrowers could surface by late 2026, with defaults expected around mid-2027.
These insights follow the Trump administration’s decision to pause involuntary collections on defaulted student loans in January. This pause includes wage garnishment and the seizure of federal benefits, such as Social Security.
The administration has not specified when this pause will end but is preparing to transfer management of the defaulted student-loan portfolio to the Treasury Department, which will take over collections responsibilities.
The New York Fed’s blog noted that the average borrower in default is nearly 40 years old, an increase from about 36 years old before the pandemic. This demographic shift indicates that older borrowers are struggling with payments at a higher rate than prior to the pause.
Researchers suggested that Parent PLUS borrowers may be contributing to this increase in defaults.
