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Millions of student loan borrowers recently defaulted on their loans, according to new data from the Federal Reserve Bank of New York.
The New York Fed reported in a blog post Tuesday that about 1 million borrowers defaulted on their debts in the fourth quarter of 2025, and an additional 2.6 million borrowers defaulted in the first quarter of 2026.
New defaults were concentrated among older borrowers, those in southern states, and those who were not in default on their federal student loans before the pandemic, the researchers wrote.
The researchers also said millions of borrowers who were enrolled in the now-defunct Biden-era Valuable Education Savings plan will be forced to start making payments, “potentially leading to a second wave of defaults.” A federal appeals court halted the SAVE plan earlier this year. Borrowers who register for SAVE will have their payments waived from summer 2024 onwards.
Defaults could “reverberate in the credit space”
Student loan defaults are on the rise as more borrowers are forced to restart payments after years of relief.
More than 40 million people with federal student loans haven’t had to make a payment for more than three years because of the coronavirus pandemic. Then, from October 2023 to October 2024, the U.S. Department of Education still did not report late payments to credit bureaus during the “increase” period.
New York Fed researchers noted that student loan defaults reappeared on consumer credit reports for the first time in the fourth quarter of 2025. That’s because it typically takes 270 days after a missed payment for a debt to reach that status, he said.
Approximately 7.7 million student loan borrowers were in default before the pandemic, according to Department of Education data.
“If economic hardship from loan defaults spills over into family credit situations, and collections on defaulted loans eventually resume, the ripples of this wave could continue to reverberate through the credit space,” New York Fed researchers said.
The federal government has extraordinary collection powers over student loans, and can seize a borrower’s tax refund, wages, Social Security retirement benefits, and disability benefits. But for now, the collection efforts remain on hold.
