Student Loan Defaults Surge as Treasury Takes Over Collections
Approximately 2.6 million federal student loan borrowers entered default in the first quarter of 2026, following the end of pandemic-era protections. The U.S. Treasury Department has taken over collection of defaulted loans from the Department of Education, and wage garnishment is set to resume. Borrowers in default can pursue rehabilitation or consolidation to restore their standing.
WASHINGTON — About 2.6 million federal student loan borrowers entered default in the first quarter of 2026, according to data from the Federal Reserve Bank of New York, as the long-term effects of the pandemic payment pause continued to ripple through the system.
The surge follows roughly 1 million borrowers who entered default in the fourth quarter of 2025. Defaults are concentrated among older borrowers and those in Southern states, the New York Fed found.
The U.S. Treasury Department has taken over management of defaulted federal student loans from the Department of Education as part of an interagency agreement. Treasury is now overseeing private collection agencies and the Default Resolution Group, which helps borrowers return to good standing.
Wage garnishment and other involuntary collection actions are set to resume in 2026 after a temporary delay to accommodate the transition. Borrowers in default also face credit damage, potential seizure of tax refunds, and withholding of Social Security benefits.
Two main paths exist for borrowers who want to get out of default. Loan rehabilitation requires nine on-time monthly payments over 10 consecutive months and removes the default record from the borrower's credit report. Loan consolidation is faster but leaves the default on the credit history.
Advocates warn that many borrowers are unaware of these options or are struggling to reach their loan servicers. The Department of Education has directed borrowers to log in at StudentAid.gov or visit myeddebt.gov to identify their servicer and explore repayment options.
