- As many as 13 million federal student loan borrowers could be in default by the end of 2026, according to Protect Borrowers, roughly one in four of all federal borrowers.
- The SAVE repayment plan has been dismantled, and its replacement, the Repayment Assistance Plan, carries payments that are 12 times higher for median-income families.
- The Education Department released data in February showing more than 1,800 colleges have nonpayment rates at or above 25%, triggering new warnings about institutional aid eligibility.
- Graduate and professional students facing newly capped federal borrowing limits under the One Big Beautiful Bill Act are increasingly being pushed toward private lenders to cover the gap.
- Private student loan rates currently start around 2.84% for creditworthy borrowers with a cosigner, but federal loans should still be exhausted first before turning to private options.
The Education Department confirmed in late 2025 that wage garnishment for defaulted student loan borrowers would resume in early 2026. Collections are now active. According to a February analysis from Protect Borrowers, as many as 13 million federal borrowers could be in default by year-end, roughly one in four of all federal student loan borrowers. For context, the peak mortgage delinquency rate during the 2008 financial crisis topped out just under 12%. This would be more than double that, in a single federal credit program.
The proximate cause is the collapse of the SAVE repayment plan. SAVE was struck down through a combination of litigation and the One Big Beautiful Bill Act signed by President Trump, which restructured repayment options for borrowers taking out loans on or after July 1, 2026. Borrowers who had been counting on SAVE to keep monthly payments low (some qualified for $0 payments) are now being moved toward the Repayment Assistance Plan. The payment difference is not minor. A family of two adults and two children earning the U.S. median household income of $81,000 would pay $440 per month under RAP, versus $36 under SAVE, according to the Institute for College Access and Success.
The New York Fed added to that picture on February 10, when it released its Q4 2025 Household Debt and Credit Report. Student loan delinquency already stands at 9.6% of balances 90 or more days past due, elevated since credit bureau reporting resumed after the pandemic forbearance period ended. Overall household delinquency hit 4.8% in Q4, the worst reading since 2017. Student loans were among the categories with the sharpest upward movement.
Then, on February 19, the Education Department released updated nonpayment data showing that more than 1,800 colleges have nonpayment rates at or above 25%. An institution’s nonpayment rate tracks borrowers who are 90 or more days behind. The department warned that schools with persistently high rates risk losing access to federal financial aid, a consequence that would ripple directly to future students at those institutions.
All of this is pushing some borrowers toward private loans. Graduate and professional students are feeling it most acutely. The OBBBA caps what students can borrow through federal Grad PLUS loans, and for high-cost programs like nursing, law, and business, the gap between federal borrowing limits and actual costs is growing. Jennifer Mensik Kennedy, president of the American Nurses Association, told PBS that students pushed out of the federal system “are going to seek private loans. Oftentimes, those are more predatory or have higher interest rates, and they don’t qualify for public service loan forgiveness.”
If you’re weighing private loans to fill a gap, the rate landscape matters. Federal undergraduate loans currently carry a 6.39% fixed rate for the 2025-2026 academic year. Federal unsubsidized loans for graduate students sit at 7.94%. Private student loan rates start around 2.84% for borrowers with strong credit and a cosigner, but extend to 17.95% depending on the lender and the applicant’s profile. For a borrower who qualifies, comparing the best private student loans side by side can reveal real differences in APR, cosigner release terms, and grace periods that aren’t obvious from a single lender’s marketing.
Before going that route, exhaust your federal options first. Direct Subsidized and Unsubsidized loans come with income-driven repayment protections, Public Service Loan Forgiveness eligibility, and deferment rights that no private lender replicates. That safety net is the reason federal loans exist. Private borrowing makes sense when federal limits fall short of what you actually need to cover school costs. It shouldn’t be the first call you make. If you’re already holding private student loans from a period when rates were higher, checking current private student loan rates against your existing balance is worth doing. The Fed cut its benchmark rate three times in 2025, and some borrowers who took out variable-rate private loans in 2023 or 2024 may now qualify for meaningfully better terms through refinancing.
The Education Department’s next cohort default rate data and the New York Fed’s Q1 2026 report, due in May, will be the clearest early signal of how bad the default wave actually gets. What’s already certain is that the SAVE era is over, RAP is here, and millions of borrowers are still figuring out what that means for their monthly budgets.
