What Happened?

More than one in five people with federal student loans held by the Education Department were in default by this summer, nearly double the share a year earlier. A Congressional Research Service report released Friday, Oct. 23 found the default rate jumped from 12% (5.3 million borrowers) in the April through June 2025 quarter to 19% (8.8 million) the next quarter, then kept climbing through June. ​

The report, also covered in Legis1’s analysis, ties that “default cliff” to the end of pandemic relief. Payments were paused from March 2020 to August 2023, and late borrowers were shielded from penalties until January 2025. After that, many who had fallen behind slid into default, which generally hits after 270 days of missed payments.

Why Does it Matter to Me?

Late student loan payments can cut a credit score by more than 150 points, the report says, and a federal database can flag defaulted borrowers who apply for government-backed mortgages or small business loans. Three changes could affect your loans:

  • SAVE borrowers: A federal appeals court order on March 10, ended the Saving on a Valuable Education (SAVE) plan, which had about 7.5 million enrollees. Since July 1, servicers have been giving borrowers 90 days to choose a new repayment plan, or be placed in a standard plan. The report warns that shift could lead to more defaults, since borrowers whose payments are tied to income default less often.
  • Other plans closing: The Pay As You Earn and Income-Contingent Repayment plans end no later than Saturday, July 1, 2028, so borrowers in them will need to switch before then.
  • Credit report errors: A 2023 Education Department transfer of loans between servicers may have contributed to nearly 2 million credit reporting errors, partly because credit bureaus allegedly weren’t told, the report says. One debt can show up as two.

Both Sides, Now

The Trump administration says ending SAVE stops what it calls an unlawful shift of student debt onto taxpayers. “The law is clear: if you take out a loan, you must pay it back,” Education Under Secretary Nicholas Kent said in a December statement on the agreement to end the plan.

Borrower advocates say servicer mistakes push people toward default. A Consumer Financial Protection Bureau review of more than 18,000 complaints in November 2024 found billing errors, misapplied payments and bad repayment advice. Amy Czulada of Protect Borrowers told The Philadelphia Inquirer that ending SAVE “was a political choice on the part of the Trump administration to not fight for borrowers.”

What Happens Next?

The Education Department published a final rule Friday, May 1, putting last year’s One Big Beautiful Bill Act student loan changes in place, and most of it took effect Wednesday, July 1. It created a new Repayment Assistance Plan that sets payments at 1% to 10% of income, with a $10 monthly minimum.

The report cautions that rolling out these changes may further complicate how loans are managed. Servicers are due to notify every remaining SAVE borrower of the switch before the end of the year.

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