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Millions of Americans may face a financial reckoning as student loan delinquencies are projected to reach unprecedented levels, according to new data released by the Federal Reserve Bank of New York. Their biennial report, issued Wednesday, suggests that more than 9 million borrowers could experience significant drops in their credit scores within the first quarter of this year. The report offers a detailed look at the evolving student loan landscape following the disruptions brought on by the Covid-19 pandemic.
According to the 2025 Student Loan Update, approximately 15.6% of federal student loans were estimated to be past due by the end of 2024 — a record high. This equates to more than $250 billion in delinquent loans affecting 9.7 million borrowers. These estimates are based on Federal Student Aid (FSA) data as of September 30, 2024, with additional figures from the final quarter of the year expected after March 31. The growing rate of delinquency signals deepening financial pressure among student borrowers.
The report also highlights the significant damage that student loan defaults can inflict on credit scores. New delinquencies can lower subprime borrowers’ credit by an average of 87 points, while borrowers with excellent credit may face reductions as steep as 171 points. These sharp declines not only affect access to future credit but can also increase the cost of borrowing, making financial recovery more difficult for millions.
During the Covid-19 pandemic, many borrowers benefited from government interventions, including payment pauses and stimulus payments, which helped reduce outstanding balances. However, some borrowers saw their loans remain in limbo as student loan forgiveness efforts led by the Biden administration were challenged in court. The 3.5-year payment pause officially ended in September 2023, followed by a one-year “on-ramp” period that temporarily shielded borrowers from penalties for missed payments.
That grace period expired on September 30, 2024. Since then, the New York Fed has found that many borrowers have not resumed payments at pre-pandemic rates. While some were able to reduce their loan balances, a sizable number of borrowers saw their debt either stagnate or increase — a troubling sign that repayment struggles persist. Contributing factors include non-payment and ongoing administrative forbearance, especially as the “Saving on a Valuable Education” repayment plan remains entangled in legal disputes.
As economic pressures mount, the burden of student debt is becoming increasingly difficult to manage. The situation has been further complicated by the Trump administration’s recent decisions, such as temporarily pausing applications for income-driven repayment plans and taking steps to restructure the Department of Education. These changes could limit options for borrowers seeking relief or more flexible repayment terms, worsening an already fragile situation.
Financial experts are warning of a ripple effect. Ted Rossman, a senior industry analyst at Bankrate, emphasized that borrowers may begin to fall behind on other types of debt as student loans eat into their budgets. “It’s the ‘you can’t get blood from a stone’ idea,” he noted. “If student loan payments are unaffordable, other financial obligations may also suffer.” This could lead to broader issues in the credit and housing markets as well.
While student loan holders represent a smaller portion of total consumer spending, the implications of rising delinquency are significant. The New York Fed’s report reveals a growing fragility in the financial health of American households, especially in an era of increasing economic volatility and renewed fears of a potential recession. As the system buckles under pressure, the need for long-term solutions becomes more urgent than ever.