What’s Driving Student Loan Delinquencies?

Student loan delinquencies are rising mainly because pandemic-era protections have ended while many borrowers’ budgets are being squeezed by higher living costs, unstable finances, and policy changes that made repayment more complex and less generous.​

Structural and Policy Shifts

• The multi‑year payment pause and zero‑interest period from 2020 to late 2023 broke the habit of regular repayment and left many borrowers disconnected from servicers.​

• When reporting of missed payments and collections resumed in 2024–2025, delinquency rates jumped from well under 1% during the pause back toward or above pre‑pandemic levels, revealing underlying distress that had been masked.​

• The expiration of the “on‑ramp” (a period when missed payments did not hurt credit) and replacement or rollback of more generous income‑driven plans increased required payments for many borrowers.​

Household Finances and Inflation

• High inflation in essentials such as housing, food, and transportation has eroded disposable income, making it harder for borrowers to fit student loan payments into their monthly budgets even when nominal payments are smaller than before the pandemic.​

• Some borrowers technically could afford payments but prioritize rent, utilities, or other debts, so student loans become the bill that goes unpaid, contributing to rising delinquency among even “prime” and “super‑prime” credit tiers.​

• Wage growth has not fully offset increased living costs for many, and some borrowers in income‑driven plans see higher required payments when nominal earnings rise, further tightening budgets.​

Borrower Profile and Aging Debt

• Older borrowers, including Gen X and Boomers, show particularly high delinquency rates, in part because they often carry larger monthly payments and may be juggling mortgages, childcare or eldercare, and other debts.​

• A substantial share of delinquent borrowers are over 40, reflecting long‑running balances that have grown with interest and are harder to manage when careers plateau or health and caregiving costs rise.​

• Racial and wealth disparities mean Black and Latinx borrowers, and first‑generation or low‑income students, often borrow more relative to income and have less family support, raising default risk.​

System Design and Servicing Problems

• Rising college costs and a financing model that leans heavily on individual borrowing have produced higher average debts at the same time that many graduates’ wages have stagnated.​

• Complex repayment options, servicing errors, and poor communication have led some borrowers to miss opportunities for affordable plans or temporary relief, increasing the odds of falling behind.​

• Resumed collections tools—like wage garnishment and tax refund offsets—do not cause delinquency by themselves but raise the stakes once borrowers slip, especially for those already on the financial edge.​

Key Short‑Term Triggers

• The restart of billing, credit reporting, and collections after a long pause created a “default cliff” in 2024–2025: millions had not made a valid payment for months, so once protections ended they quickly became delinquent or defaulted.​

• Administrative churn—servicer changes, outdated contact information, and confusing bills—means some borrowers missed payments simply because they did not receive or understand notices.​

• Credit data show sharp increases in the share of borrowers 30–90+ days late and big score drops for many renters and other consumers, underscoring how student loan distress is now feeding into broader credit and housing challenges.​