Student loan delinquencies and defaults have trended upward since October 2025, when pandemic-driven policy leniency hit a hard deadline. The three U.S. credit bureaus resumed capturing and reporting student loan delinquencies and defaults and assigning lower credit scores.
The lower credit scores – and particularly the appearance of a default – could prevent some prospective buyers from purchasing homes for up to seven years.
Low credit scores impact mortgage qualifications and raise housing costs
Credit scores are key to qualifying for a mortgage, and weak scores funnel borrowers to higher mortgage rates offered to risky borrowers. What’s more, the higher combined principal and interest payments likely will wind up being paired with higher hazard insurance premiums. That’s because insurers consider credit scores to gauge risky behavior that may align with property damage. The combined impact on monthly payments could prevent buyers from qualifying due to caps on debt payments as a percent of income.
Most conventional 30-year mortgages limit total debt payments (e.g., mortgage, credit cards, and auto) to 43% of monthly income, while FHA loans may allow up to 50% – but only with strong credit scores.
Defining delinquency and default for student loans:
A student loan account is delinquent when a payment due date was missed. At 90 days past due, delinquency is reported to credit bureaus.
A student loan is in default when no payment has been made for 270 days (nine months). At that point, the entire principal and interest balance is due, and refinancing options are extremely limited.
Student loan delinquencies and defaults also hurt renters, as landlords of Class A and B properties may turn down their applications. Utility companies evaluate credit scores and may require a larger security deposit to provide water, gas and electricity, and cable/internet. Renter’s insurance is often a requirement to lease and will cost more with a weak credit score.
As defaults impair consumers’ credit reports for up to seven years, a portion of the estimated 3.6 million student loan borrowers in default as of Q1 2026 may fall out of the buyer pool for years.
Rising household debt may contribute to student loan delinquency. Student debt balances remained fairly flat as of Q1 2026, while other types of household debt ticked higher, according to the Quarterly Report on Household Debt and Credit, from the Federal Reserve Bank of New York’s Center for Microeconomic Data.
However, the share of student loans that have fallen past due increased to roughly 10%, on par with pre-pandemic levels.
Delinquent student loan borrowers faced an October 2025 deadline
When the pandemic’s “stay at home” restrictions took effect in March 2020, President Biden halted student debt monthly payment obligations. The reprieve lasted for over three years, until payment requirements resumed in October 2023. However, President Biden’s “on ramp” program provided an additional 12-month grace period during which any missed payments were not reported to the three credit bureaus.
During Q4 2025, student loan lenders again began reporting delinquencies to the credit bureaus. The first post-pandemic defaults reflecting 9+ months of nonpayment were reported to credit bureaus in Q1 2026.
Liberty Street Economics, a team of New York Fed economists engaged in research, estimates 1.0 million student loan defaults were reported to credit bureaus in Q4 2025, and another 2.6 million defaults were reported in Q1 2026. The economists note a potential wave of defaults may lie ahead as very few of the 7 million delinquent borrowers who planned to participate in the SAVE income-based repayment plan (cancelled by the Department of Education in March 2026 per the ruling by the U.S. Court of Appeals for the 8th Circuit) have been making monthly payments.
This Fall, many could hit the 270-day mark that equates to default.
Student debt default rates are rising among older borrowers
Liberty Street’s analysis of the age distribution of recently defaulted borrowers reveals somewhat lower percentages for 20 to 32-year-old borrowers than the pre-pandemic default rate. However, default rates have risen among 35 to 70+ year old borrowers, although overall default rates remain low. Approximately 1.5% of all newly defaulted borrowers are 50 years old.
Members of the Millennial generation are now 30 to 45 years old and considered by housing and demographic experts to be in their prime working and family-building years. They recently surpassed the Boomers in numbers, and homebuilders and resale agents are excited by Millennials’ interest in buying homes. Roughly 2.5% to 3.0% of newly defaulted student loan borrowers are ages 30 to 45 years old.
Sun Belt markets face elevated student loan defaults, a demand red flag
Liberty Economics calculated the share of student loan defaults occurring in Q4 2025 or Q1 2026 by state. Even the states with more moderate exposure have recent default rates of at least 4%. View the map here.
Homebuilders operating in major Sun Belt markets, such as Houston, Atlanta, Dallas-Fort Worth, and Phoenix, have been reducing new home starts and clearing their inventories of finished but unsold homes to align supply with soft demand.
Shrinkage in the buyer pool could push builders to further curtail new home starts, reducing new home supply despite the newly enacted 2026 ROAD to Housing law’s stated goal of boosting supply. Lower starts volume would also challenge building product manufacturers, homebuilding subcontractors, and land developers who sell lots to builders.
| Share of student loans in default | Sun Belt States |
| 6%-8% | California, Colorado, Florida, Utah, Virginia |
| 8%-10% | Arizona, Nevada, New Mexico, North Carolina, Tennessee, Texas |
| Over 10% | Alabama, Georgia, Louisiana, Mississippi, South Carolina |
| Source: Liberty Street Economics, May 12, 2026 | |
Up to now, the main impact of loan delinquencies and defaults has been the lowering of borrowers’ credit scores. Liberty Street indicates defaulted borrowers’ credit scores dropped 91 points in the 2nd half of 2025, from an average of 567 to 473. These borrowers are also delinquent on other debts. Data for Q1 2026 reveals 21% are delinquent on their mortgages, 40% are delinquent on auto loans, and 57% are delinquent on credit card payments.
The Department of Education has suspended efforts to collect on student loan defaults while refining the range of repayment options and an opportunity for borrowers to “rehabilitate” their student loans.
However, the government may garnish borrowers’ wages, tax refunds and even their Social Security payments in the future. Such reductions in household income would sideline potential homebuyers if weakened credit scores and more costly monthly payments due to higher mortgage rates did not already disqualify them from purchasing homes.
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