Student Loan Defaults Surge Across the U.S. as Young Borrowers Say They Simply Can’t Pay

NEW YORK — On a gray weekday morning outside a federal loan servicing office in downtown Manhattan, recent graduates shuffled past with envelopes in hand, many of them unopened. “I already know what it says,” said 26-year-old Emily Rodriguez, who finished college two years ago and has yet to make her first student loan payment. “I don’t have the money.”

Scenes like this are becoming increasingly common across the United States as student loan delinquencies spike following the end of pandemic-era repayment pauses. With the job market cooling and wages failing to keep pace with living costs, a growing number of borrowers—particularly young Americans—are falling behind, raising new concerns about financial stability.

According to the Financial Times and other outlets, at least 9 million student loan borrowers have missed one or more payments so far this year. The Financial Stability Oversight Council (FSOC) warned in a recent report that while delinquency rates for most household debt remain relatively stable, student loans stand out as a “notable exception.”

The numbers are stark. Total U.S. student loan debt now stands at roughly $1.7 trillion. As of the third quarter, 9.6% of those loans were more than 90 days past due—up from just 0.5% a year earlier. That represents a staggering 1,820% increase in the delinquency rate within a single year. FSOC said more than 9 million borrowers slipped into delinquency once credit reporting resumed.

Economists point to a weakening labor market as a key driver. Many new graduates are struggling to secure stable, full-time jobs, leaving them unable to shoulder even modest monthly payments.

“Borrowers are literally out of money,” Charlie Wise, vice president of global research at TransUnion, told reporters. “What we’re seeing is a direct reflection of the fragility in today’s job market.”

Survey data reinforces that picture. In a TransUnion poll of 196 borrowers who missed payments, nearly half said they simply lacked the financial capacity to repay. About one in four said they were holding out hope for additional government relief or loan forgiveness. The median monthly student loan payment in the U.S. is around $200—an amount that many respondents said still feels out of reach.

The roots of the crisis trace back to the early days of the COVID-19 pandemic, when the U.S. government froze federal student loan repayments in 2020. The moratorium was extended multiple times before payments officially resumed in October 2023. However, missed payments were not formally classified as delinquencies until September of last year.

Wise criticized the government’s approach, saying officials moved too cautiously in restarting the repayment system. “The transition back to repayment was poorly managed,” he said. “Borrowers were not prepared.”

The financial consequences are already rippling outward. Credit scoring firm VantageScore reports that borrowers who missed student loan payments this year saw their credit scores drop by an average of 100 points. Many fell from the low-600s—considered near-prime—into subprime territory below 550. FSOC data show that 56.6% of new delinquents now have credit scores under 620.

For borrowers, the damage goes beyond missed payments. “People are being shut out of the credit market over relatively small amounts,” said Diane Swonk, chief economist at KPMG U.S. “That limits their ability to build wealth—buying a car, renting an apartment, or eventually owning a home.”

Back outside the loan office, Rodriguez summed up the mood shared by many in her generation. “They tell us to be responsible,” she said, clutching her unpaid bill. “But responsibility doesn’t create money.”

As student loan defaults continue to climb, economists warn the issue may soon spread beyond individual households, testing the resilience of the broader U.S. financial system.