Student Loan Delinquency Rates Soar to 21-Year High as COVID Moratorium Ends

The end of the COVID-era student loan repayment moratorium has triggered a sharp rise in delinquencies, with rates reaching their highest level in 21 years, according to a recent report from the Federal Reserve Bank of New York. As of June 2025, 10.2% of aggregate student loan debt was 90 or more days delinquent, a significant jump from 7.7% in the first quarter and a stark contrast to the 0.4% recorded in the final quarter of 2024 during the moratorium’s tail end. With total outstanding student debt climbing to $1.64 trillion, the resurgence of missed payments is wreaking havoc on borrowers’ credit scores and signaling broader financial distress among American households.

The moratorium, which began in March 2020, paused federal student loan payments and suspended delinquency reporting to credit bureaus, driving delinquency rates to historic lows of 2% or less. This pause was extended multiple times by the Biden administration, with a one-year “on-ramp” period ending in October 2024, during which missed payments were not reported. However, as reporting resumed in 2025, the share of loans transitioning into serious delinquency—90 days or more past due—soared to 12.9%, surpassing pre-pandemic levels of 9-10% from 2012 to 2020. Borrowers aged 50 and older faced the highest delinquency rates at 18%, while those aged 40-49 and 30-39 followed at 14% and 11%, respectively. The youngest cohort, aged 18-29, had the lowest rate at just over 8%.The impact on credit scores has been severe. Of the 5.8 million borrowers who became delinquent in early 2025, 2.2 million saw their credit scores drop by over 100 points, and more than 1 million experienced declines of at least 150 points. Over half of these borrowers already had subprime credit scores below 620, limiting their access to new credit, while 2.4 million with scores above 620 now face higher borrowing costs or outright denials for loans and credit cards. This credit crunch is particularly acute in states like Mississippi (44.6% conditional delinquency rate), Alabama (34.1%), and West Virginia (34%), where economic challenges exacerbate repayment struggles.

The end of the moratorium has also led to a wave of defaults, with an estimated 1.8 million borrowers entering default in July 2025, followed by projections of 1 million in August and 2 million in September. Defaulted borrowers now face aggressive collection actions, including wage garnishment and seizure of tax refunds or Social Security payments, as the U.S. Department of Education resumed collections in May. The financial strain is compounded by high interest rates and a slowdown in hiring, with consumer spending dropping in the first half of 2025.Analysts point to deeper systemic issues. Michele Raneri of TransUnion noted that the rising delinquencies reflect a growing vulnerability to default, while LendingTree’s Matt Schulz described the repayment restart’s impact as “substantial.” Some experts argue that federal student loan policies have fueled tuition inflation, making higher education less affordable and burdening borrowers with unsustainable debt. Total student debt, including private loans, now exceeds $1.7 trillion, surpassing auto loans and credit card debt, with only mortgage debt being larger.

The surge in delinquencies has sparked renewed debate over student loan forgiveness. While the Biden administration’s attempts at broad debt cancellation were blocked by the Supreme Court, the issue remains contentious. Critics warn that forgiveness could create a “moral hazard,” encouraging future borrowing in expectation of relief, while others argue it could alleviate financial pressure and stimulate economic activity. For now, borrowers are left grappling with a system that Secretary of Education Linda McMahon called “broken,” citing insufficient transparency and accountability in higher education financing.

As delinquency rates climb, the student debt crisis is emerging as a critical economic challenge. With millions facing damaged credit and looming collections, the ripple effects could further strain consumer spending and economic stability, particularly for younger and lower-income households already stretched thin.

Sources: Fox Business, New York Federal Reserve, TransUnion, WalletHub, X posts