The resumption of student loan payments in the U.S. has led to a sharp increase in delinquency rates, with the New York Federal Reserve reporting a surge to nearly 8% in the first quarter of 2025. This rise comes after a 43-month pause on federal student loan payments and interest that lasted from March 2020 through September 2023, followed by a one-year on-ramp period ending in October 2024, during which missed payments were not reported to credit bureaus.
The impact of these delinquencies has been significant, with millions of borrowers experiencing drops in their credit scores. Over 2.2 million borrowers who became newly delinquent saw their credit scores decrease by more than 100 points, with more than 1 million experiencing a drop of at least 150 points. Notably, nearly one in four borrowers over the age of 40 were more than 90 days past due on their payments. This decline in credit standing is likely to affect their ability to secure new credit, such as auto loans and mortgages, and could lead to higher borrowing costs.
The U.S. Department of Education, in collaboration with the U.S. Treasury, has resumed collection efforts on defaulted student loans, which includes wage garnishment, tax refund seizures, and deductions from Social Security benefits. This move affects approximately 5.3 million borrowers in default, with an estimated 452,000 of those being older Americans aged 62 and above. The delinquency rate varies significantly by state, with seven states reporting rates above 30% and five states below 15%, marking a significant shift in policy that could have broader economic implications as borrowers adjust their spending to accommodate debt repayment.
As the Trump administration resumes collections on defaulted student loans, a surprising population has been caught in the crosshairs: Hundreds of thousands of older Americans whose decades-old debts now put them at risk of having their Social Security checks garnished.
