Overdue Student Loans are on the Rise
All three of mine were in college at one time or another. We had the parental loans. In one case we had to take over a loan Both my wife and I paid off the double-digit thousands of dollars over time. It does not mean everyone else can do so.
The overlying factor here is, the sooner debt disappears, the sooner they can add to the nation’s economy by buying into a home, etc. Lower interest rates should prevail in this instance. Make the student loans easy to pay off. If a student goes into the military, wipe of 25% or 33% of the loan for each year of service tuition. If injured or dead, the loan is forgiven. The same hold true for health issues, etc.
A lot of detail here. I went through it and did some editing. The article covers a lot of territory on student loans. A 14-minute read with many charts.
“Overdue student loans on the rise: Potential causes and implications for wage garnishment,” Chase
Introduction
This report attempts to answer these questions. Using de-identified, administrative banking and credit bureau data from 1.1 million households with student debt in 2019 and 1 million in 2025, we find:
- The increase in overdue payments above historical levels is due to high-income borrowers. The highest earning borrowers are 45% percent more likely to be overdue compared to 2019.
- Compared to 2019, overdue borrowers today need a smaller share of their discretionary income to make their monthly payments. Also, they are less likely to be delinquent on other debts.
- More than 75% of overdue households, (includes 54% of the highest-income overdue households) have not made any payments since the COVID pause ended.
- If their wages are garnished, the typical overdue borrower would lose about half of their discretionary income. Eight percent would need to reduce essential spending or other debt payments.
To assess how overdue borrowers today are different than overdue borrowers before the pandemic, we compare the fraction of borrowers who were overdue (by income group) in 2019 to the fraction who are overdue in the 12-month period ending June 2025.
Figure 1 shows a smaller share of the lowest-income borrowers were overdue in 2025 than in 2019. A higher share were overdue in all other income groups. Amazingly (my emphasis), the highest-income borrowers were showing the greatest increase. Part of this may be driven by IDR borrowers still being in forbearance due to court action around the Biden administration’s SAVE plan. IDR borrowers tend to have lower incomes. Without this forbearance many of these lower-income borrowers would have missed payments by June 2025 along with the rest of the current wave. This does not explain why the share of the highest-income borrowers who are overdue has gone up by almost 50%, from 10.7% in 2019 to 15.6% in 2025. Figure 2 shows a similar pattern by bank balances, which comprise a significant portion of households’ liquid wealth.
Explaining Why
Figure 1: Low-income student loan borrowers are less likely to be overdue today relative to 2019 while high-income borrowers are more likely to be.
Figure 2: As with income, borrowers with low bank balances are about as likely to be overdue today as in 2019, while borrowers with high bank balances are more likely to be overdue.
Is this surge in overdue payments among higher-income borrowers is driven by a decrease in their financial security? Chase looks at financial security directly to answer this question.
If borrowers are less financially resilient today than pre-pandemic, it could explain an increase in overdue borrowers. We assess the overall financial resilience of overdue borrowers in several ways.
First, we compare borrowers’ monthly student debt payments to their discretionary income, which is the average amount of money each household uses for discretionary spending (expenditures other than rent, debt payments, and necessities like medicine and groceries) and savings. The larger a borrower’s monthly student debt payments are relative to their discretionary income, the more burdensome those payments are likely to be. Figure 3 shows that, among overdue households, student debt payments are less burden-some today than in 2019. To cover their debt payment, a typical low-income household overdue needed to spend the equivalent of 61% of their discretionary income in 2019 versus 33% in 2025. Other income groups also saw marked decreases. Figure A1 shows an alternative metric of burden using only the household’s leisure spending and finds a similar result.
Figure 3: Monthly payments are a lower share of discretionary income in 2025 than in 2019.
Another way to assess whether the composition of overdue borrowers has changed is to look at missed payments on debts other than student loans such as credit cards, auto loans, or mortgages. A household having trouble paying its student loans is probably having difficulty with other debts as well. If more households that are overdue on student debt are current on their other debts as of 2025, it would suggest that this cohort of overdue borrowers is in a better financial position than past cohorts. Figure 4 shows the share of households in each income bin that were also at least 60 days past due on some debt that is not a student loan in the last 6 months of each sample period.
The missed payment rate on non-student debt is high in both years, with rates higher for higher-income borrowers. These higher delinquency rates for higher income households are somewhat counterintuitive. Lower-income house-holds generally hold less debt. A household can’t be delinquent on a debt it doesn’t have. Higher-income borrowers are more likely to qualify for and have other debts like credit cards, auto loans, and mortgages. More relevant for our assessment is the fact non-student debt delinquencies are markedly lower for all income groups. It is much more likely in 2025 for a borrower to be overdue on their student loans and current on all other debts. This suggests borrowers are not more vulnerable today than in 2019.
Figure 4: Among overdue student loan holders, delinquency on other types of debt is significantly lower in 2025 than it was in 2019.
Another way to assess whether borrowers might be unaware that payments were supposed to resume is to look at when borrowers last made a payment. If a borrower made some payments after the end of COVID forbearance and then stopped making payments, that would suggest that they knew payments had resumed but were unable to continue making payments due to financial hardship. If most overdue borrowers had resumed making payments at some point after October 2023, it would be much harder to believe a story where current delinquencies are driven by borrowers not knowing that the payment pause ended. Conversely, if most borrowers never resumed making payments, it’s possible (though not necessarily true) many current delinquencies are caused by insufficient communication between servicers and borrowers.
Figure 5 shows how many overdue borrowers never made payments after the end of the COVID pause in October 2023. Even among the highest-income borrowers who were the most likely to have made a payment since the end of the pause, a majority (54%) never resumed payments. The large difference in “never payers” between low- and high-income groups could be driven by differences in financial hardship (low-income households may have more difficulty repaying their loans) or differences in information access or financial literacy.9 While the presence of many high-income “never payers” is far from definitive proof that some borrowers were unaware that the pause ended or forgot to restart their payments, it leaves the possibility open.
Figure 5: A majority of overdue borrowers in every income group has not made any student debt payments since the end of COVID forbearance.
Whether recent delinquencies are driven by economic hardship or communication difficulties, borrowers continuing to be delinquent will default on their loans. For federal student loans, default officially occurs once a borrower is 270 days past due. Then, they may have up to 15% percent of their after-tax wages garnished. Historically, very few defaulted borrowers have had their wages garnished. De Fusco et al. (2024) found that 0.4 of 1% of workers had their wages garnished for student debt in 2019.
This corresponds to roughly 1.5% of student debt borrowers.10 In April, the Department of Education (ED) announced it would be resuming garnishment in May; however, the wave of delinquencies that started in October 2024 will not be classified as in default until late 2025 at the earliest. If all borrowers’ delinquent in mid-2025 default, ED statistics suggest that almost 25% of borrowers (roughly 10 million people) will be subject to garnishment.
The study assesses how burdensome garnishment might be for borrowers in our sample by estimating each overdue household’s garnishment amount (15% of take-home payroll income) and comparing it to the borrower’s average monthly budget allocation to savings, leisure spending, non-leisure discretionary spending, and non-discretionary spending.11 So while households have more discretion in their clothing expenditures than with groceries or utility bills, clothing expenditures are still less discretionary than say vacation spending. In our calculation of garnishment cost, we focus on payroll income because it is administratively much harder to garnish self-employment income.
Figure 6 shows how households will have to adjust their budgets to account for the 15% drop in take-home payroll income. These budgetary adjustments are similar across income groups, likely driven by several factors.
- First is that garnishment mechanically scales with income because it is a fraction of income.
- Second is that higher-income households are more likely to take advantage of pre-tax spending and saving programs like 401(k) retirement accounts and employer sponsored health insurance. This makes high-income households’ take-home income appear artificially low in our data and will understate their ability to adjust to garnishment.
- Third, consumption of many essential goods scales with income. Higher-income households buy larger houses and nicer cars. The share of their budget used on “essential” spending is fairly similar to that of lower-income households (Schanzenbach et al. 2016).
Many borrowers will be able to adjust without significant hardship. A significant portion will have to reduce non-discretionary spending. It could lead to significant hardship and an increase in non-payment of other bills and debt obligations. Between 14 and 21% of households (depending on income group) will not have to adjust their spending at all. The income lost to garnishment is less than or equal to the amount the household adds to its savings monthly. ~ 65% of overdue borrowers might be able to reduce leisure spending enough to leave their other spending untouched. Ten to 13% of households will have to adjust their monthly savings, leisure spending, and some of their non-leisure discretionary spending Seven to 9% will have to reallocate their entire discretionary budget as well as some of their non-discretionary spending, including groceries, utility bills, rent, and payments on other debts like auto loans.
Figure 6: Many borrowers will have significant difficulty adjusting to a 15 percent wage garnishment.
Even those not having to decrease their non-discretionary spending will have to make significant adjustments. Figure 7 shows that the typical overdue household in all income groups would need to give up roughly 50% of their discretionary income (savings plus discretionary spending) in response to wage garnishment.
Figure 7: Wage garnishment would require significant spending reductions for most overdue borrowers.
Implications
The findings suggest the current share of borrowers overdue on their student debt is not higher than it was in 2019 because of increased financial vulnerability among overdue households. Compared to 2019, the share of overdue borrowers has risen most among high-income households. Discretionary income households needed to cover their monthly payments is lower. The likelihood households are delinquent on other debts is also lower. Although most borrowers are financially vulnerable. Wage garnishment would require a significant portion of their discretionary income. These two sets of findings have significant implications for the student debt landscape going forward.
- If the “excess” overdue borrowers today are caused by borrower confusion or information issues, delinquency rates may normalize from historic highs quickly as borrowers realize they are delinquent, e.g., servicers are able to contact borrowers or borrowers apply for new debt and discover their student debt delinquency and begin making payments.
- If the share of low-income borrowers who are overdue is not higher than expected? It may be due to the continued IDR forbearance. This will end at some point in the near future and we may see another wave of delinquencies. Some of these may be due to communication or administrative issues, IDR borrowers tend to have lower incomes, and financial hardship may be more common among these borrowers.
- Garnishing the wages of defaulted borrowers could lead to significant hardship for borrowers. Households may need to give up roughly half of their discretionary income (discretionary spending plus routine saving). In the past, garnishment for student loans were relatively short, with most ending within 4 months (De Fusco et al. 2024). Borrowers may be able to resolve their garnishments as easily today as they did in 2019. Income-driven repayment and loan rehabilitation plans can make this easier than completely curing the debt. The burden may be manageable for many households.
- Student loans are a large and varied set of loan types with conditions and policies which vary. More detailed reporting of student loans to credit bureaus could greatly help borrowers. Such would provide clarity to the financial institutions and professionals borrowers rely on for financial advice and products. Currently, different kinds of student loans (federal and private loans) are not identified from one another in credit records. Even within federal loans there are a multitude of loan types. All have slightly different conditions and qualify for different support programs. Some loans are subsidized and some can be put into an income-driven repayment plan. Some can be forgiven through Public Service Loan Forgiveness. All these variations have different implications for borrowers’ financial lives. Additional transparency and clarity in credit records could be a low-cost way to improve borrowers’ long-run financial well-being.
Via the One Big Beautiful Bill Act, passed into law in July 2025, Republicans in Congress overhauled the federal student loan repayment system. For new borrowers, the law eliminates access to all existing income-based plans and replaces them with a new “Repayment Assistance Plan” (RAP).
RAP raises payments for most borrowers (with disproportionate impacts on the lowest-income borrowers) and extends the maximum repayment term from the current 10-25 years to 30 years. This will likely trap the lowest-income borrowers in debt for decades. The law also eliminates deferment and forbearance options for borrowers facing unemployment and economic hardship.
In addition, under RAP’s monthly payment formula, borrowers will see unpredictable payment spikes whenever their income crosses certain arbitrary thresholds. These spikes, which could penalize borrowers for even small cost-of-living raises, will likely further erode borrower trust.
Taken together, these changes will likely make it harder for low- and middle-income borrowers to keep up with their monthly payments, which could lead to increased delinquency and default rates once they go into effect.
Ideally, lawmakers would reverse the changes made via the reconciliation law and enact a more affordable and accessible repayment system to protect borrowers from default. However and as long as the new repayment system stands, ED must provide timely, clear, and actionable resources to borrowers to help them manage these changes. Servicers must also be held accountable for properly managing borrower accounts and providing expedient customer support. At minimum, this means properly calculating borrowers’ monthly payment amounts, ensuring correct reporting to credit agencies, and correctly tracking borrowers’ progress toward loan discharge.
Of course, the Department and its contracted loan servicers need sufficient resources to do all this. We urge Congress to recognize its role in ensuring the Department can and will carry out its statutory responsibilities—or there is sure to be a default disaster affecting the immediate financial well-being of millions of their constituents.