Executive Summary
There are currently almost 43 million holders of student loans totaling $1.6 trillion (see first graph). Since the Covid relief measures as well as talk of loan forgiveness by the previous administration, many debtors were optimistic they would never have to pay. As of May 5, 2025, the U.S. Department of Education resumed collections on student loans. The resulting jump in delinquencies is illustrated in the second graph. In a couple of months, as many as 25% of federal student loans could be in default, with only 38% being current. Now add student loan balances to other consumer loans (see last graph), and one can see consumers are strapped with $18.2 trillion in debt. This could impact the overall financial system as consumers struggle to meet debt obligations with rising interest rates.
For further analysis, continue to read The Details below for more information.
“Many a man thinks he is buying pleasure, when he’s really selling himself to it.”
–Benjamin Franklin
The Details
Currently, there are almost 43 million holders of student loans totaling over $1.6 trillion. These debtors have not been concerned about repayment since March 2020, when Covid relief measures allowed deferrals without risk of enforcement action. With numerous extensions, and some talk of forgiveness, students put their loans on the back burner. Congress mandated borrowers begin repayment in October 2023, yet the Biden administration refused to enforce collections. Many hoped they would never have to face the reality of repayment. The graph below shows the massive rise in student loan balances from under $60 billion in 2000 to over $1.6 trillion today.
According to a report from the Department of Education in April 2025,
- More than 5 million borrowers have not made a monthly payment in over 360 days and sit in default—many for more than 7 years—and 4 million borrowers are in late-stage delinquency (91-180 days). As a result, there could be almost 10 million borrowers in default in a few months. When this happens, almost 25 percent of the federal student loan portfolio will be in default.
- Only 38 percent of borrowers are in repayment and current on their student loans. Most of the remaining borrowers are either delinquent on their payments, in an interest-free forbearance, or in an interest-free deferment. A small percentage of borrowers are in a 6-month grace period or in-school.
The U.S. Department of Education, Office of Student Aid (FSA), resumed collections on May 5th of this year. The graph below, via Robert Sterling on X, shows the surge in loan balances over 90 days past due as a percentage of the amount under 90 days past due. These past due student loans are forcing credit scores to tumble. According to an article on CNBC.com,
“Both VantageScore and FICO reported a drop in average scores starting in February as early- and late-stage credit delinquencies rose sharply, driven by the resumption of student loan reporting. […]
The Federal Reserve Bank of New York also cautioned in a March report that student loan borrowers who are late on their payments could see their credit scores sink by as much as 171 points as collection activity resumes.”
And for perspective, when student loans are added to other mortgage and consumer debt, the total is over $18.2 trillion according to the New York Fed. The graph below provides a breakdown.
Consumers are swimming in debt. The resumption of collections on the enormous balance of student loans is impacting the credit worthiness of borrowers and will affect their standing on other consumer loans. And the rise in interest rates is only complicating the matter.
It appears that the enforcement of student loan repayments is bigger than just student loans. This could have a serious impact on the financial system.
The S&P 500 Index closed at 5,803, down 2.6% for the week. The yield on the 10-year Treasury Note rose to 4.51%. Oil prices remained at $62 per barrel, and the national average price of gasoline according to AAA stayed at $3.18 per gallon.
© 2024. This material was prepared by Bob Cremerius, CPA/PFS, of Prudent Financial, and does not necessarily represent the views of other presenting parties, nor their affiliates. This information should not be construed as investment, tax or legal advice. Past performance is not indicative of future performance. An index is unmanaged and one cannot invest directly in an index. Actual results, performance or achievements may differ materially from those expressed or implied. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy.
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