A new analysis from the JPMorgan Chase Institute points to an unexpected driver behind the jump in overdue student loan payments and raises important questions for collection professionals as the Department of Education prepares to resume wage garnishment on defaulted federal loans.
Delinquencies spiked in late 2024 when the federal on ramp ended and servicers began reporting past due loans to credit bureaus again. That surge was expected. What was not expected is that the share of borrowers overdue on their loans today is slightly higher than it was before the COVID-19 pandemic and may continue rising. The Department of Education estimates that the default rate could climb to 25%.
The report finds that the increase is being driven largely by high income households, not lower income borrowers typically associated with repayment struggles. The highest earning borrowers are now 45% more likely to be overdue compared to 2019. At the same time, overdue borrowers today need a smaller share of discretionary income to make their payments and are less likely to be delinquent on other types of debt, such as auto loans or credit cards.
One key signal that repayment problems may be rooted in confusion rather than hardship is that more than 75% of overdue households have not made a single payment since the COVID payment pause ended in October 2023. That includes more than half of the highest income overdue households.
The Department of Education has announced plans to resume wage garnishment for defaulted borrowers. The Institute’s analysis shows the typical overdue household would lose about half of its discretionary income if garnished, and roughly 8 percent would need to reduce essential spending or cut back on other debt obligations to absorb the loss.
For collection operations, the findings point to several implications. First, some of today’s delinquencies may resolve quickly as borrowers become aware they are past due or as servicers increase outreach. Second, the unwinding of income driven repayment forbearances may produce another wave of missed payments, especially among lower income borrowers who are more likely to be in hardship. Third, garnishments may create strain not only for the borrowers affected but for other creditors, since households facing a reduction in take home pay may reprioritize which bills get paid.
The report also highlights the potential value of clearer credit reporting for student loans. Distinguishing between federal and private loans, and between repayment programs, could help lenders, collectors, and financial counselors better understand a borrower’s situation and create more effective engagement strategies.
