Federal Student Loan Defaults Increase

The New York Fed reports that the share of past-due federal student loan balances has climbed to just over 10%, driven by an older demographic of borrowers.

05/21/2026 12:00 P.M.

Federal student loan defaults are rising again, marking the end of a multiyear period of government intervention that shielded millions of borrowers from the consequences of nonpayment.

According to data released May 12 by the Federal Reserve Bank of New York’s Center for Microeconomic Data, the share of past-due student loan balances has climbed to just over 10%, nearing levels recorded before the COVID-19 pandemic. This shift follows the October 2024 expiration of the Department of Education’s 12-month on-ramp period, during which missed federal student loan payments were not reported to credit bureaus.

The resumption of credit reporting has triggered a drop in credit scores for affected consumers. New York Fed researchers noted in a blog post for Liberty Street Economics that the average credit score for recently defaulted borrowers fell 91 points between the third quarter of 2024 and the final quarter of 2025, dropping from 567 to 476.

The demographic data challenges the assumption that recent defaults are primarily affecting young graduates or those who were struggling before the pandemic. The New York Fed found that the average borrower entering default over the past two quarters is 38.9 years old, which is 2.5 years older than the pre-pandemic average of 36.4 years. While researchers acknowledged this aging could partly be a structural byproduct of a four-year pause in delinquency reporting, they also observed an increase in default rates among borrowers aged 50 and older.

Additionally, more than 75% of the borrowers who recently entered default were either current on their loans or did not have a payment due in 2019 because they were in school, in a grace period, or enrolled in a $0-payment income-driven repayment plan. Only about 4% of recent defaulters were already in default before the pandemic pause began.

The report suggests that while the sharpest surge in defaults has likely passed, more delinquency fluctuations could occur later this year as borrowers navigate changes to the federal repayment system.

More Changes to Student Loans Hit This Summer

The Department of Education recently issued a final rule stemming from its Reimagining and Improving Student Education rulemaking process, aimed at overhauling significant portions of the federal student loan landscape. Effective July 1, 2026, the rule replaces all prior repayment options with just two: the Tiered Standard plan and the Repayment Assistance Plan.

The final rule targets specific categories of borrowers, including people who owe more than they originally borrowed due to unpaid interest, those eligible for forgiveness under Income-Driven Repayment plans who have not yet applied, and those who attended programs that did not provide sufficient financial value.

Among its technical updates, the rule eliminates the Grad PLUS program and establishes annual and aggregate loan limits for graduate and professional students. It also significantly limits interest capitalization, which historically caused debt to compound when a borrower moved between different repayment plans or exited deferment. Additionally, the rule sunsets access to economic hardship and unemployment deferments for loans made on or after July 1, 2027.

These federal policy changes are expected to create a ripple effect in consumer credit markets. Higher education expert Mark Kantrowitz told CNBC that private student loan volume may double due to the new federal loan limit restrictions, and some lenders have already disclosed to Congress that they are preparing for greater demand in the private sector.

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