An increasing number of federal student loan borrowers are facing default as protections from the pandemic period lapse and options for loan forgiveness under the Biden administration transition under Trump’s policies. About 9.5 million borrowers are now in default, a significant rise from 5.3 million in June 2025. This means almost one in five federal student loan borrowers is over nine months behind in their payments.
Consequences of Default
Defaulting on student loans can lead to severe consequences. Borrowers may experience damaged credit, wage garnishment, and withheld tax refunds. Future federal benefits might also be reduced. These issues underscore the importance of addressing the situation promptly.
Linda Hilton, a 76-year-old retired office worker from Apache Junction, Arizona, shared her experience with the consequences of loan default prior to COVID-19. She managed to endure garnishment before and expects to do so again, but this situation restricts her lifestyle choices, such as travel and dining out.
Impact of Economic Changes
The rise in defaults coincides with the end of COVID-era payment pauses and protections. Once these ceased, borrowers quickly reentered default status. Loan system simplification under the Trump administration aimed to reduce repayment options, but it increased financial burdens for many, causing a rise in monthly payments.
A student loan defaults after 270 days of non-payment, leading to collection activities like wage garnishment and tax refund seizures. Restoring one’s financial status is not as simple as resuming payments. Rehabilitation, consolidation, or discharge programs are essential for recovery.
Options for Borrowers in Default
Fortunately, borrowers have several options to escape default. According to Federal Student Aid, borrowers can opt for loan rehabilitation, consolidation, or full repayment:
- Loan Rehabilitation: Borrowers make a series of payments based on their income. Successful rehabilitation removes the default status and halts collection activities. It is generally available once per loan.
- Consolidation: Borrowers can consolidate defaulted loans into a new Direct Consolidation Loan. This may involve agreeing to an income-driven repayment plan and can be a faster way out of default.
- Repayment in Full: Paying the entire loan balance resolves default, though this option may not be feasible for everyone.
Preventing Default
For those not yet in default, deferment or forbearance are possible options. These measures temporarily reduce or pause payments, helping borrowers avoid default. Struggling borrowers should immediately contact their loan servicer to explore these possibilities.
Resolving default typically requires loan rehabilitation or consolidation. Once in default, deferment and forbearance options are unavailable until the borrower is back in good standing.
Income-Driven Repayment Plans
Income-driven repayment plans tie payments to a borrower’s earnings, offering an alternative for those facing financial difficulties. Options like ICR, PAYE, or IBR may lower monthly payments based on individual circumstances.
I feel for these borrowers. They’ve been misled by schools that vanished, and now they face a nightmare with changing repayment rules,
said Kevin Thompson of 9i Capital Group.
Recommended Steps for Borrowers
Borrowers who are at risk of default should take these steps:
- Log into StudentAid.gov to verify loan status.
- Update contact information with loan servicers.
- Contact the servicer if payments are unmanageable.
- Explore income-driven repayment options.
- Consider rehabilitation or consolidation if in default already.
Alex Beene, a financial literacy instructor, emphasizes the importance of addressing default or delinquency urgently. Expecting debt forgiveness can damage credit and future borrowing capacity.
Future Outlook
As borrowers adjust to the termination of the SAVE plan and new repayment rules, contact with servicers is crucial. Borrowers should act swiftly to avoid deeper delinquency, stated finance expert Michael Ryan.