Federal student loan defaults are increasing. The New York Fed’s latest quarterly report on household credit and debt It shows that about 3.6 million borrowers entered default in the last two quarters (Q4 2025 and Q1 2026), the first major wave after the pandemic payment pause ended.
That figure looks smaller than the U.S. Department of Education reports, but the two agencies aren’t measuring the same thing. More details on that below.
by numbers
- Nearly 1 million federal student loan borrowers defaulted in the fourth quarter of 2025.
- Another 2.6 million defaults occurred in the first quarter of 2026.
- The share of past due student loan balances has returned to near 10% of pre-pandemic levels.
- Total US household debt increased by $18 billion last quarter to $18.8 trillion.
- The average age of a defaulted borrower is 38.9, up from 36.4 before the pandemic.
- Borrowers who defaulted had their credit scores drop an average of 91 points (567 to 476).
who is at fault
The typical defaulter looks different than it did before the pandemic stopped. Borrowers tend to be older, with the burden being in the over-50s range, and most were not struggling before the pause. About 30% were current on their loans in 2019, and about half had no payments outstanding. Only about 4% were in default before 2020.
Defaults are also concentrated in the south. Louisiana, Mississippi, Alabama, Georgia and South Carolina each have at least 10% of borrowers in default. No state was untouched: even the states with the lowest share had at least 4% of borrowers default.
Why don’t NY Fed and FSA numbers match?
federal student aid informed 7.7 million borrowers with $180 billion of loans were in default by December 2025, an increase of about 2.5 million from September. The NY Fed has reported nearly 3.6 million new defaults over the past two quarters. Both are correct because they measure different things.
- Stock vs Flow: FSA has 7.7 million stock number, Meaning Every borrower is currently classified as in default in ED’s servicing system, including long-time pre-pandemic defaulters. NY Fed’s 3.6 million is one Flow – Borrowers whose defaults appeared on credit reports in the last two quarters.
- Various data sources: The FSA pulls administrative data covering all ED-managed borrowers. The NY Fed uses Equifax credit report data drawn from a nationally representative sample.
- Reporting Interval: ED reclassifies accounts as default at 270 days delinquency, but loan servicers send the data to Equifax on their own time, usually 30 days after the default occurs. The gap between the two data sets is expected to narrow in the coming quarters.
what will happen next
A second wave of defaults may come. About 7 million borrowers are now in forbearance under the shuttered SAVE plan, which will expire this summer. As they return to repayment, defaults may increase again, approximately nine months after their first missed payment.
If the borrowers themselves do not choose the new repayment plan, they will default to the standard plan. And if they don’t pay, they will start down the path of default.
The FSA data also identified approximately 1.8 million borrowers who are already in late-stage delinquency and are at risk of defaulting in the next six months.
Collections on defaulted federal loans are moving to the Treasury Department, and wage garnishments and other collection activity are expected to resume this fall.
When they reopen, borrowers face payroll deductions up to 15% of disposable wages, Treasury offsets of tax refunds, and Social Security offsets. A federal default remains on credit reports for seven years.
how does it connect
The SAVE plan’s forbearance is ending this fall, and the Education Department is sending notices to more than 7 million borrowers to choose a new repayment plan or be automatically enrolled in the standard plan, which has historically been the highest repayment option and a known driver of delinquency.
Borrowers in default still have options: loan rehabilitation, which consists of nine timely income-based payments, or consolidation, which can take an average of 30-60 days.
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