Federal Student Loan Repayments Restart as Defaults Climb

After years of pandemic-era pauses on federal student loan payments and collections, repayment obligations are now fully back in force — and hundreds of thousands of borrowers are struggling. More borrowers are missing payments and moving into default, raising questions about personal finances and broader economic effects.

Defaults Jump as Payments Restart

New data show roughly one million borrowers defaulted on federal student loans late last year, with millions more behind on payments and sliding toward default.

Here’s the breakdown from recent Federal Reserve and Treasury data:

• Delinquencies — borrowers more than 90 days late — nearly 10% of all student loan balances.
• About 5.2 million borrowers already in default as of late 2025.
• Millions more in early and mid-delinquency stages.

Many analysts describe this wide slide as an “escalator” of rising delinquency into default.

What Default Means for Borrowers

Default isn’t just a late payment — it triggers real consequences under federal rules:

• Wage garnishment can begin — employers may withhold up to 15 % of pay.
• Tax refunds and Social Security benefits may be seized to cover unpaid federal loan debt.
• Default harms credit scores, making it harder to buy a home, car, or rent housing.

Default also follows a borrower missing payments for 270 days or more.

Enforcement Actions Are Returning

With repayment back in effect, federal collection tools are being used again:

• Wage garnishment notices began in early 2026 and are expected to scale up.
• Tax refund and Social Security offset programs could resume in future months.

The Department of Education has said it delayed some involuntary collections to align with updates to repayment programs, but pressure from rising default rates is driving enforcement now.

Why Repayment Restarted

Federal student loan payments and interest accrual were paused for years during the COVID-19 pandemic. Those breaks finally ended as part of policy changes and legal shifts — meaning borrowers now owe full monthly payments again under standard rules.

Once borrowers miss enough payments, the loan enters default status and collections can begin.

Ripple Effects on the Economy

High delinquency and default rates aren’t just a borrower issue — they can ripple through the broader economy:

• Consumer spending may soften as garnishments reduce take-home income.
• Auto and home buying could weaken if credit scores are hit or budgets are squeezed.
• Borrower financial stress may strain household budgets broadly.

A recent study also found many borrowers are delaying major life purchases like homes due to their debt obligations — adding another layer to economic concerns.

Options for Borrowers

Borrowers facing default have a few paths to avoid long-term damage:

• Income-driven repayment plans adjust monthly payments based on income.
• Loan rehabilitation or consolidation can help remove default status.
• Communicating with loan servicers early can prevent default from worsening.

Bottom Line

With federal student loan repayment fully resumed and default rates climbing sharply, many borrowers face renewed financial pressure.

Rising defaults now mean collections actions like wage garnishment and refund seizures are active again, with real impacts on household budgets and credit profiles.

This shift also highlights ongoing debates about whether the student loan system is sustainable or requires structural reform.