More than 12.5 million federal student loan borrowers could potentially face delinquency or default by the end of 2026. This projection, based on current repayment trends, comes from the latest data provided by the Department of Education.
Current Delinquency and Default Data
As of March 2023, 2.97 million federal borrowers were delinquent on their student loans, meaning their payments were between 30 and 270 days overdue. Additionally, 9.57 million borrowers were already in default, indicating payments were at least 271 days overdue. If these borrowers do not resume repayments, the number of delinquent and defaulted borrowers could reach 12.54 million by the end of the year.
Kevin Thompson, CEO of 9i Capital Group, emphasizes the importance of understanding repayment and potential tax exposure. He notes, “The Trump administration and Department of Education are going to push repayment. Those payments could be much higher than under SAVE.”
Implications of Loan Defaults
Loan defaults can significantly damage credit scores, making it more challenging for borrowers to qualify for mortgages and credit cards. Additionally, defaults can result in wage garnishment.
The Trump administration is intensifying efforts to bring borrowers back into repayment, resuming collection actions suspended during the Biden administration and the pandemic era.
Student Debt Accumulation
According to Forbes Advisor, the average bachelor’s degree recipient graduates with around $29,560 in student loan debt. The College Investor reports the average federal student loan balance across all borrowers is about $39,500. These figures highlight the disparity between debt at graduation and debt carried over time.
Professional and graduate degree students often bear the largest debt burdens. WealthVieu data shows dental school graduates accumulate about $295,000, medical school graduates $215,000, and law school graduates $145,000 in debt. Fields like medicine, dentistry, veterinary medicine, and pharmacy rank high in student loan balances.
Conversely, students earning associate degrees or technical certificates borrow less. Community college graduates typically leave owing around $10,000 according to WealthVieu. EducationData.org found that fields such as mechatronics and robotics incur lower debt levels.
Challenges in Making Payments
Since the COVID-era pause ended, borrowers have faced difficulties with repayment. Michael Ryan, finance expert, notes that bad instructions and delayed credit reporting have complicated the restart process. Confusion arose from servicers and ongoing legal challenges with the SAVE plan.
The Department of Education has shifted loan portfolio responsibilities to the Treasury Department. Involuntary wage garnishments have resumed, and borrowers are informed that loan forgiveness is not guaranteed.
Alex Beene from the University of Tennessee highlights the transition from pandemic payment pauses to stricter repayment enforcement as confusing many borrowers.
Policy Changes Impacting Repayment
Millions of borrowers enrolled in the Saving on a Valuable Education (SAVE) plan are returning to repayment. According to Beene, ending the SAVE transition and resuming collections on defaulted loans are pushing borrowers into more expensive repayment plans.
About 7 million borrowers were part of the income-driven repayment program before it faced legal challenges. Recent shifts mean many will resume payments after a lengthy pause.
Ryan explains the surge in defaults is due to confusion rather than negligence from borrowers.
Solutions and Next Steps for Borrowers
Income-driven repayment plans or loan consolidation can help borrowers avoid default. Those already in default can explore rehabilitation options at StudentAid.gov.
Ryan advises logging into StudentAid.gov and contacting servicers to discuss rehabilitation or consolidation options.
In the coming months, borrowers exiting the SAVE plan will resume payments. Kevin Thompson warns that borrowers who anticipated forgiveness or struggle with new payments could face challenges.
Jason Lemon and Gray R. Thomas contributed editorial oversight on this story.