Millions risk falling behind on other debts due to student loan delinquencies

In the United States, the Federal Reserve Bank of New York reported a significant spike in the delinquency rate for student loan balances following the end of a nearly five-year pause on payments that began during the Covid pandemic. The resumption of collections on defaulted federal student loans, which started on May 5, 2025, has placed millions of borrowers at risk of not only failing to pay their student loans but also falling behind on other debts. Currently, there are approximately 42 million Americans with federal student loans, with 5.3 million borrowers in default and another 4 million in late-stage delinquency, meaning they are over 90 days past due on payments. About one in four borrowers, who are now required to start making payments again, are reported to be behind on their loans as they transition from a prolonged forbearance period. The lapse of this forbearance has raised concerns among researchers at the New York Fed who believe that the ongoing student loan payments may lead to a 'spillover effect' into other areas of debt, affecting borrowers' capacity to make timely payments on credit cards and auto loans. The repercussions of this situation could result in wider financial struggles for consumers, especially since many individuals relied on the pause to manage other debts during the hold on student loan payments. Analysts have indicated that as borrowers prioritize student loan repayments, their disposable income is significantly diminished, leaving them with reduced financial flexibility to cover other expenses and financial obligations.