Millions of student loan borrowers defaulted earlier this year — and a second wave of delinquencies could be on the way, the Federal Reserve Bank of New York said Tuesday.
About 1 million borrowers fell into default in the fourth quarter of 2025, and another 2.6 million did the same in the first quarter of this year, Fed researchers wrote in their report. Blog post.
The share of delinquent student loan balances is returning to pre-pandemic levels as repayment resumes after a three-year hiatus, researchers said.
About 7.7 million student loan borrowers were in default before the coronavirus outbreak, according to the Department of Education.
The average age of a borrower who defaults is about 40 years old and was not delinquent on their loans before the pandemic, according to the blog post. They are likely to live in the South as well.
During the pandemic, payments were paused and interest was reduced to 0% for more than 40 million people with federal student loans. Borrowers were not required to make payments for more than three years as the moratorium was repeatedly extended.
Although the pause officially ended in September 2023, there was an “off-track” period when the Department of Education did not report late payments to the credit bureaus.
Since it takes 270 days of missed payments to enter into default, the fourth quarter of 2025 was the first period in which new defaults began to appear on credit reports.
New York Fed researchers have warned that a second wave of defaults may be coming as borrowers in the now-defunct Savings Plan (SAVE) plan are forced to resume repayments.
A federal appeals court ended the Biden-era provision of the VA earlier this year. As the plan reaches the courts, nearly 7 million borrowers have been forgiven for making payments since the summer of 2024.
The biggest wave of student loan delinquencies has likely passed, according to researchers.
“But the resulting ripples may continue to reverberate through the credit space if financial hardship caused by distressed loans spills over into household members’ credit files, and when collections of distressed loans eventually resume,” they wrote.
Borrowers in default on student loans are more likely to have fallen behind on other forms of debt, according to the blog post.