Record Defaults in Federal Student Loans Rise Amid Changes

The number of federal student loan borrowers in default has reached a record high as protections from the pandemic era fade, compounded by changes in student loan forgiveness options under the Trump administration. According to an AP analysis, around 9.5 million borrowers are now in default, a rise from 5.3 million in June 2025. This equates to nearly one in five federal student loan borrowers being at least nine months behind on payments.

Why It Matters

Defaulting on student loans carries serious consequences. Borrowers may face damaged credit, wage garnishment, withheld tax refunds, and reduced federal benefits. Despite the challenges, there are ways to avoid the harshest collection actions.

Linda Hilton, a retired office worker from Apache Junction, Arizona, experienced garnishment before COVID-19. She predicts facing it again, which will affect her ability to travel and enjoy retirement luxuries. “It’s going to mean restrictions,” Hilton says. “There won’t be any travel. There won’t be any frills.”

What To Know

The increase in defaults follows the end of the COVID-era payment pause and additional protections that shielded borrowers from immediate penalties on missed payments. Many reentered default after these protections were lifted.

Kevin Thompson, CEO of 9i Capital Group, explains that simplifying the loan system under the Trump administration led to increased payments for many. The changes have resulted in higher monthly bills amid inflation and shifts in repayment programs.

Default occurs after 270 days of missed payments, leading to collection actions such as wage garnishment and tax refund seizures. Michael Ryan, a finance expert, notes that simply resuming payments does not restore good standing. Options like loan rehabilitation, consolidation, or discharge programs are necessary to resolve default.

What Borrowers Can Do If They’re in Default

Fortunately, default is not permanent. Federal Student Aid outlines three main paths to move forward:

Loan Rehabilitation

This option involves agreeing to a series of income-calculated payments. Completing rehabilitation removes the loan from default and halts collections. It’s typically available once per defaulted loan.

Consolidation

Consolidating defaulted loans into a new Direct Consolidation Loan might be another route. Borrowers usually need to set up repayment arrangements or choose an income-driven plan. This option may be faster than rehabilitation, depending on circumstances.

Repay the Loan in Full

Borrowers could settle default by paying the remaining balance, which is challenging for those under financial strain.

Can Borrowers Get Deferment or Forbearance?

Borrowers not yet in default can seek deferment or forbearance, pausing or reducing payments temporarily. This helps prevent default and is recommended by Federal Student Aid for those facing payment problems.

Michael Ryan notes that once in default, deferment, forbearance, and forgiveness options are lost until loans are back in good standing.

Income-Driven Repayment May Help

Income-driven repayment plans can lower bills by linking payments to earnings. Kevin Thompson advises exploring options like ICR, PAYE, or IBR for suitable plans.

What Steps Should Borrowers Take?

Borrowers falling behind should act quickly. Financial experts recommend:

• Checking loan status on StudentAid.gov
• Updating contact information with servicers
• Contacting servicers if payments are unaffordable
• Exploring income-driven repayment options
• Considering rehabilitation or consolidation if already in default

Alex Beene from the University of Tennessee warns that ignoring default risks long-term financial harm, including credit score damage and future borrowing difficulties.

What Happens Next

The student loan environment is changing as borrowers adapt to new rules and the end of the SAVE plan. Those enrolled in SAVE are urged to select different repayment options. Struggling borrowers should reach out to servicers to prevent deeper delinquency. Michael Ryan emphasizes immediate action for delinquent borrowers to avoid default.

For further inquiries, contact Newsweek editors Jason Lemon and Gray R. Thomas.