The so-called student loan default cliff is here.
Following an increase in federal student loan delinquencies over the past year, approximately 1 million borrowers’ loans fell into default by the end of 2025, according to the latest Household Credit and Debt Report from the Federal Reserve Bank of New York.
And those defaults could continue to rise in the coming months. Overall, 9.6% of student loans are 90 days or more delinquent, and an increasing number of balances are becoming seriously delinquent.
Whether you are trying to avoid default status or recover from a default, knowing your options can help you find the best path forward.
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A major part of the rapid rise in delinquencies, leading to defaults, is what the New York Fed calls the “ongoing effects of the resumption of payment reporting following the prolonged pandemic forbearance period.”
After years of forbearance from the COVID-19 pandemic, federal student loan payments resumed for many borrowers in 2023. After that, there was a one-year period during which missed or missed payments were not reported to the credit agencies. That access ramp ended in September 2024.
Since then, more and more borrowers have gone into default.
In June 2025, Federal Student Aid data showed that 34.4% of federal student loan recipients (more than 6 million) were more than 30 days delinquent. Of those 6 million borrowers, more than 4 million were seriously delinquent and at risk of defaulting in the next six months.
Quarterly household debt and credit data show a similar picture of accounts that went into serious delinquency throughout 2025. The number of accounts making that transition was just 0.70% at the end of 2024, but rose to 12.88% in the second quarter of 2025, 14.26% in the third quarter of 2025, and peaked at 16.2% in the final quarter of 2025. 2025.
Now, it’s been more than a year since federal student loan reporting restarted, and long-standing delinquents are reaching default status.
Student loan defaults can happen quickly. Technically, your federal student loan is considered delinquent on the first day after you miss a payment.
Once you miss a payment, the best thing you can do is work to pay it back as quickly as possible. If you miss payments because you can no longer afford them, consider switching to a different payment plan or see if you qualify for a deferment or forbearance relief.
If you don’t take action, your delinquent account may have longer-lasting consequences after 90 days, when the loan becomes seriously delinquent.
That’s when late payments can start to affect your credit score. After 90 days, your loan servicer will begin reporting delinquencies to the credit bureaus, which could cause your average credit score to drop by up to 171 points, according to a report from the New York Federal Reserve.
Eventually, you will reach default status if you continue to fail to take action on delinquent loans.
For the most common types of federal student loans, including Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, and Direct Consolidation Loans, you will be considered delinquent if you don’t make a payment for at least 270 days. That’s about nine months of missed loan payments.
In addition to the impact on your credit rating, default can have some important consequences. You will not be eligible for deferment, forbearance, or any additional federal student aid, and your entire loan balance will be due immediately.
Defaulting on your student loan can also result in involuntary collections of your wages or tax refund. For now, the U.S. Department of Education has delayed those fees to “allow the Department to implement important student loan repayment reforms” passed into law last year. However, the department views the delay as temporary, meaning wage garnishment should remain a concern for any borrower in default.
Read more: After Trump’s Budget Bill, Are Federal Student Loans Still the Gold Standard?
If your federal student loans go into default, there are two main paths you can take: loan rehabilitation or loan consolidation. Before you decide, contact your loan servicer to find out which options might be best for your individual situation. Here is a summary of both options.
Read more: How to Get Student Loans Out of Default
Loan rehabilitation involves making a series of on-time monthly payments on your loan.
For the most common types of federal student loans, you must agree (in writing) to make nine reasonable monthly payments within 20 days of each due date and then make those nine payments for 10 consecutive months. The reasonable monthly payment is equal to 10% or 15% of your annual discretionary income, divided into 12 monthly payments.
At this time, loan rehabilitation is a one-time remedy. Starting in 2027, you will have another second chance to rehabilitate a defaulted loan. After completing the rehabilitation program, your loan will no longer be in default and you will be eligible for deferment, forbearance, loan forgiveness, and other federal loan benefits.
You can also consolidate your student loans into a Direct Consolidation Loan. This new loan will include the principal balance of your loan and the interest you have already accrued.
If you choose consolidation to get out of default, you must agree to repay your consolidated loan on an income-based repayment plan or make three consecutive, on-time payments (a reasonable amount as determined by your loan lender) on your defaulted loan before consolidating it with the new loan. If you choose the latter option, you can pay off the new consolidated loan using any payment plan you qualify for.
Once your loan is consolidated with the new Direct Consolidation Loan, you will once again be eligible to receive federal loan benefits, including deferment and forbearance.
see if student loan refinancing could help you better manage your debt:
One important difference between these options is the effect they can have on your credit score.
If you choose loan rehabilitation and complete the program, your loan default record will be removed from your credit. With loan consolidation, that record will remain on your credit history.
Under either plan, late payments reported to the credit bureaus before your loan went into default (during default) will also remain on your credit history.