Student Loan Delinquency Rate Hits Record High As Collections Resume

Millions of student loan borrowers are facing collections as delinquency rates soar above 20%. Starting on Monday (May 5), the U.S. Department of Education resumed collections on defaulted loans after a five-year pause initiated in March 2020 due to the COVID-19 pandemic.

The Trump administration has begun garnishing wages, tax refunds, and federal benefits like Social Security for those in default. This comes as many Americans are already struggling with economic uncertainty. The Education Department's figures reveal that over five million borrowers have not made a payment in over 360 days, and four million are nearing default.

According to credit reporting agency TransUnion, 20.5% of borrowers have payments that are 90 days or more past due, marking the highest rate ever recorded.

The impact on credit scores is severe, with some borrowers experiencing drops of up to 175 points. Subprime borrowers, those with FICO scores between 300 and 600, have seen the highest delinquency rates, with 51% at least 90 days past due. TransUnion's analysis shows that the financial strain is widespread, affecting borrowers across various credit tiers.

As reported by TransUnion, the complexity of student loan payment reporting means that the actual number of delinquent borrowers may be even higher. Many borrowers are not making payments but are not yet considered delinquent due to deferment or forbearance.