Student loan delinquency hits nearly 6 million Americans — how can you avoid default and protect your credit now?

Nearly six million Americans are at least three months behind on their federal student loan payments, putting many at risk of defaulting soon. Delinquency starts the day a payment is missed and is reported to credit bureaus after 90 days, which harms credit scores. Continued delinquency can lead to default, triggering much harsher consequences like wage garnishment and loss of tax refunds or Social Security payments.

Consumer Reports advises borrowers facing difficulties to immediately contact their loan servicer to explore repayment plans suited to their financial situation.

For those already in default, two main options are loan rehabilitation—making affordable monthly payments for about 10 months to remove default status—and loan consolidation, which combines one or more defaulted loans into a new single loan payment but may increase overall interest costs.

The crucial advice is not to ignore the problem because addressing it early provides more options to regain control over the loans. Additionally, borrowers should avoid student loan scams promising quick debt relief, as they often involve high fees or identity theft risks.

The immediate steps to avoid federal student loan default are:

• Contact your loan servicer immediately if you are having trouble making payments or expect to miss a payment. Ignoring the problem will worsen your situation.
• Switch to a lower payment option, such as an income-driven repayment (IDR) plan, which bases monthly payments on your income and household size. Applications for IDR plans have been reopened and simplified.
• Set up automatic payments (autopay) through your loan servicer. Autopay can help prevent missed payments and may reduce your interest rate by 0.25%.
• If you cannot afford payments even under an IDR plan, you may qualify for temporary relief options like deferment or forbearance to pause payments temporarily.
• Use the Federal Student Aid Loan Simulator to find the best repayment plan for your situation and apply for it.
• Monitor your loan status regularly online at StudentAid.gov and communicate early with your loan servicer to understand your options.
• Avoid waiting until delinquency reaches 90 days, since loans are reported to credit bureaus at that point, negatively affecting your credit score.
• If your loan is already in default, options such as loan rehabilitation and loan consolidation can help bring the loan back into good standing and stop collection actions like wage garnishment.

Acting early and proactively managing your loans are key to avoiding default and its severe consequences such as wage garnishment, tax refund withholding, and credit damage.

Delinquency negatively affects your credit score over time in the following ways:

• Once a payment on a loan or credit account is more than 30 days late, it is reported as delinquent to credit bureaus, which causes a noticeable drop in your credit score.
• The longer the delinquency lasts, the greater the damage. For example, a payment that is 30 days late can drop your score by 90-110 points, and a 60-day late payment can drop it by around 130-150 points.
• After 90 days of delinquency, the account is usually considered in default, leading to severe credit score damage as well as potential collections and legal actions. This can cause even deeper long-term credit harm.
• Delinquencies stay on your credit report for seven years from the original delinquency date, continuing to impact your creditworthiness during that period, although their impact diminishes over time.
• The credit score impact depends on factors like your previous credit score and how many payments have been missed, but payment history is the most significant factor in credit scoring models.
• Early action, such as making a minimum payment to stop the delinquency from worsening, can help mitigate the damage.
• Delinquency also affects your ability to get new credit, may increase borrowing costs, and can lead to suspension of charging privileges.

How does SAVE plan interest reinstatement change your balance

The reinstatement of interest on federal student loans under the SAVE (Saving on a Valuable Education) plan means that starting August 1, 2025, interest will begin accruing again on borrowers' loan balances after a pause during which no interest was charged. This causes the loan balance to increase over time if the accrued interest is not paid.

Key impacts on your balance due to SAVE plan interest reinstatement include:

• Interest will accumulate monthly on the principal balance, increasing the total amount owed.
• Even though payments may still be paused temporarily (forbearance), the growing interest will cause your loan balance to balloon, making eventual repayment more challenging.
• The unpaid interest is separate from the principal balance but can capitalize (get added to the principal) if you switch plans or at certain milestones, further increasing the loan balance.
• Borrowers are encouraged to make payments at least covering the monthly accrued interest to prevent the balance from growing.
• Remaining in SAVE forbearance without making interest payments will delay progress toward loan forgiveness.
• The SAVE plan is expected to be eliminated by July 1, 2028, requiring borrowers to switch to another repayment plan, which could lead to additional capitalization of unpaid interest.
• Borrowers should evaluate alternatives like the Repayment Assistance Plan (RAP) or Income-Based Repayment (IBR) plans to manage their balances more effectively.

Which repayment plans reduce monthly payments most

The repayment plans that reduce monthly payments the most are income-driven repayment (IDR) plans, which tie payments to a borrower's income and family size, allowing for potentially very low or even $0 monthly payments depending on financial circumstances. Here's an overview:

• Income-Based Repayment (IBR): Caps payments at 15% (or 10% for newer loans) of discretionary income. Payments can be lower than standard plans and any remaining balance is forgiven after 20-25 years.
• Pay As You Earn (PAYE): Caps payments at 10% of discretionary income, with forgiveness after 20 years. Payments never exceed the standard plan amount.
• Revised Pay As You Earn (REPAYE): Also caps payments at 10% of discretionary income but with no payment cap. Offers generous interest subsidies and forgiveness at 20-25 years.
• Income-Contingent Repayment (ICR): Caps payments at 20% of discretionary income, designed mainly for Parent PLUS loan borrowers, with forgiveness after 25 years.

Additionally:

• Extended Repayment Plans: Allow lowering monthly payments by extending the repayment period up to 25 years, though overall interest paid increases.
• Repayment Assistance Plan (RAP): Set to replace existing IDR plans starting July 1, 2026, aiming to simplify and provide robust payment assistance.

IDR plans generally offer the largest reduction in monthly payments, often significantly lowering them compared to the standard or graduated repayment plans. However, because these plans extend the repayment term, total interest costs over time may be higher.

New federal loan borrowers after July 1, 2026, will be subject to the new repayment rules including RAP, which consolidates IDR options.

What are the current interest rates for different federal loans

The current fixed interest rates for different types of federal student loans for loans disbursed between July 1, 2024, and June 30, 2025, are:


These rates are fixed for the life of the loan. Borrowers who enroll in automatic payments may be eligible for a 0.25% interest rate reduction.

Federal student loan interest rates are set annually by Congress based on the 10-year Treasury note yield plus a fixed margin. These rates are typically higher than private loan rates but come with more borrower protections such as income-driven repayment options and forbearance.

The loan fees are deducted from each loan disbursement and vary by loan type.

This information reflects the most recent federal loan rates and fees as of the 2024-2025 academic year.

Federal student loans in the USA are designed to help students and their families finance higher education costs with government-backed benefits and protections. Here is a comprehensive introduction and data overview about these loans as of 2025:

Types of Federal Student Loans

• Direct Subsidized Loans: For undergraduate students with financial need. The government pays interest while the student is in school at least half-time, during grace periods, and deferments. Loan limits depend on the year in school, capped at $23,000 total subsidized borrowing.
• Direct Unsubsidized Loans: Available to undergraduate, graduate, and professional students regardless of financial need. Interest accrues from disbursement. Higher borrowing limits than subsidized loans.
• Direct PLUS Loans: For graduate students or parents of undergraduates to cover remaining education costs. Requires credit check with no fixed borrowing limits other than cost of attendance minus other financial aid.

Eligibility and Terms

• Must be U.S. citizen or eligible noncitizen, enrolled at least half-time in an eligible program.
• Loan amounts cannot exceed cost of attendance minus other aid.
• FAFSA application required.
• Borrowers cannot be in default on prior federal loans.

Interest Rates (2025-2026)

• Direct Subsidized and Unsubsidized (undergrad): around 6.39% fixed
• Unsubsidized Graduate: 7.94% fixed
• PLUS loans: 8.94% fixed

Repayment

• Standard term is 10 years but extended and income-driven repayment (IDR) options available.
• IDR plans base payments on income and family size, often lowering payments.
• Borrower protections include forbearance, deferment, loan forgiveness programs, and income-driven plans.

Other Notes

• Federal student loans do not require a credit check except for PLUS loans.
• Many older loan types (FFEL, Perkins) exist but new loans are primarily Direct Loans.
• Loan servicers manage the loans under Department of Education oversight.

This system helps millions of students afford college with repayment options tied to their financial capability and protections not found in private loans, though interest and loan balances can grow over time if not managed carefully.