Key Points on The Student Loan Crisis
- Collections on defaulted student loans resumed in May 2025, increasing borrower distress. The Student Loan Crisis
- Over 9 million borrowers are currently in default or delinquent.
- Repayment pressure is squeezing household budgets and may be slowing consumer spending.
For Jessica R., a 32-year-old mother of two in Columbus, Ohio, the return of student loan collections has brought back a familiar anxiety. She was late on payments in early 2020 before the pandemic forbearance paused federal loan payments. Over the years, she moved, was working, and never heard from her loan servicer. Even when the pause ended, she said she never received any communication about the next steps. The Student Loan Crisis
However, when she saw my TikTok about collections resuming in May 2025, she got worried and started trying to track down her loans. She learned her wages could soon be garnished for a debt she thought she was paused. Remember, if you’re in default on your student loans, the government can take 15% of your pay cheque, your tax refund, and more.
Jessica is one of the 5.3 million Americans in default on a federal student loan. Another 4 million borrowers are at least 30 days past due, according to Department of Education data released last week.
The long-anticipated return of collections, following the end of the CARES Act-era protections, is sending a shock through households already stretched by inflation, housing costs, and medical debt.
The Student Loan Crisis on The Student Loan Crisis
The overall federal student loan balance remains stuck at $1.76 trillion, spread across 42.7 million borrowers, according to the latest student loan statistics. Many had hoped for large-scale relief that never fully materialised. Now, collection agencies are reactivating thousands of accounts, sending out letters, placing calls, and preparing to garnish wages and intercept tax refunds.
The confusion is compounded by recent legal setbacks to income-driven repayment reform, inconsistent outreach from loan servicers, and political wrangling over forgiveness efforts. Borrowers who fell through the cracks are now at the mercy of automated collection systems that show little flexibility.
Who’s to blame for the student loan crisis? It’s definitely not a straightforward answer, as much as some want to champion a personal responsibility argument.
Economic Ripple Effect on The Student Loan Crisis
Beyond individual hardship, economists warn of broader effects as repayments drag down consumer activity. A recent report from the National Bureau of Economic Research estimated that resumed student loan payments could reduce annual household spending by as much as $18 billion.
Retailers are already seeing slower sales among millennial and Gen Z customers. And consumer sentiment is at a two-year low.
Moody’s Analytics noted that as interest accrues on ballooning loan balances, many borrowers will be forced to prioritise debt over discretionary purchases. The average federal borrower owes just over $37,000, but balances often grow due to interest and missed payments. The Student Loan Crisis
And balance appears to be growing at a more rapid pace for older borrowers.
What Borrowers Can Do Now
Options remain limited. Borrowers in default have a few options to get back on track:
- Student Loan Rehabilitation
- Student Loan Consolidation
- Payment In Full
But awareness is low, and some borrowers still believe that wage garnishments will help them repay the loans (despite the added collection costs). The Student Loan Crisis
For borrowers delinquent on their student loan payments, now is the time to get current before you end up in default. If you’re already in default, student loan rehabilitation is usually a better option if you qualify. But to qualify, you can never have done it before, and it does take 9 months of payments to complete the process. Consolidation is quicker, but you’ll have the default remain on your credit history. The Student Loan Crisis