It’s only been two months since the U.S. Federal Government resumed sending lagging public student loans into default, and already it seems borrowers are having a hard time keeping up with those payments.
Data from TransUnion show 31 percent of all federal student loan borrowers (5.8 million in total) with a payment due are 90 days or more are past due and are either in default or are on the verge of loan defaults. That figure is up from 20.5 percent in February 2025. Additionally, of that 5.8 million late payment borrowers, about 1.8 million could fall into default as soon as next month, the report stated.
Approximately 180 days following the loan’s first 90-day-plus delinquency reporting, at 270 days past due, more loan recipients enter default status, “where the borrower is subject to collection actions by the U.S. Department of Education,” the study noted.
The ramifications don’t end with fees, penalties, and potential wage garnishments from the U.S. government. TransUnion estimates that student loan borrowers in default can also expect to see their credit scores drop by an average of 60 points, making it much more challenging to get loans and credit.
"We continue to see more and more federal student loan borrowers being reported as the 90+ days delinquent, making a larger number of consumers vulnerable to entering default and the start of collections activities,” said Michele Raneri, VP and head of U.S. research and consulting at TransUnion, in a statement.
Why are so many student loan borrowers inching closer to default? The end of the COVID-era loan payment suspensions tops that list.
“Many borrowers who got COVID-era relief now face surprise tax bills they can't afford, pushing them into default,” David Brilliant, a tax and estate attorney in Walnut Creek, California, told NTD by email.
Being younger, college graduates also haven’t had much experience dealing with high debt, which has further fanned the student loan debt fires.
“Most people need about five years to achieve emotional balance after major financial changes, but student loan payments restart immediately after graduation when borrowers are least equipped to handle them rationally,” Paul Deloughery, an estate planning attorney at Sudden Wealth Protection Law in Phoenix, Arizona, told NTD via email.
How to Get Caught Up With Late Payments – Or at Least Buy Some Time
Tardy student loan consumers have some recourse before Uncle Sam steps in to lower the boom. These action steps should be taken first.
Engage with your loan servicer.
Job one for late payers is to immediately contact their student loan servicers to ask about potential options that can help avoid defaulting. “Options may include income-driven repayment or other payment plans specific to their situation,” Raneri advised. “There are also loan rehabilitation programs that may allow those who do default to get out of default status.”
Keep making payments, even small amounts.
Brilliant noted that even if you're already behind on federal student loan payments, defaulted federal loans can often be brought current through consecutive on-time payments, as long as you’re working in tandem with your loan servicer.
Address your entire financial picture.
“Student loan problems are rarely just about the loans themselves,” Brilliant noted. “They create tax complications, estate planning issues, and business credit problems that compound over time. Address the whole financial picture, not just the monthly payment.”
You have more flexibility than you may think.
What most borrowers don't understand is the considerable flexibility the current system offers.
“We just recently helped a social worker drop her payment by 68 percent simply by recertifying under the new SAVE plan, which her loan servicer never even discussed with her,” Deepak Shukla, CEO at Pearl Lemon Accountants, told NTD by email. “The administration has been far less about cracking down and more about failing to communicate viable options.”
Work backwards, starting with after-tax income.
One major issue driving student loan delinquency is that recent graduates lack understanding of how to structure their finances for tax optimization while managing debt service.
“Most are paying taxes on income that could be legally reduced through strategic planning,” David Fritch, a CPA and founder of Fritch Law Office in Jasper, Indiana, told NTD by email.
Fritch said he recently worked with a client who owed $180,000 in student loans on a $95,000 salary, who was drowning until we restructured her payment strategy around tax planning.
“We set up a Limited Liability Company (LLC) for her consulting work, implemented a SEP-IRA to reduce taxable income, and used the tax savings to make extra loan payments,” he noted. “Her effective payment capacity increased by $4,800 annually just through proper tax structure.”
The biggest mistake Fritch sees is borrowers treating loan payments in isolation instead of as part of their overall financial strategy.
“In my CPA practice, clients earning $200,000 or more often struggle more with loan payments than those making $75,000 because they're paying maximum tax rates without planning,” he said.
Simple moves, such as income timing, deduction maximization, and entity selection, can free up 15-25 percent more cash flow for debt service.
“We’ve learned that financial stress compounds when people react instead of plan,” he added. “Borrowers need to calculate their after-tax income capacity first, then work backward to determine sustainable payment structures rather than accepting whatever payment plan gets thrown at them.”
The views and opinions expressed are those of the interviewees. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. NTD does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. NTD holds no liability for the accuracy or timeliness of the information provided