Millions of our student loans have lagged behind payments since 2020, facing collections for the first time, which could delay consumer spending as the U.S. economy stumbles.
Nearly a quarter of borrowers lag behind in their student loans in the three months to March, according to calculations by the New York Fed Consumer Credit Team and credit bureau Equifax.
The Trump administration has restarted the involuntary collection of defaulted federal student loans and said it will begin to receive (or deduct) wages, tax refunds and social security benefits “later this summer.”
Resuming the collection of student loans could pose a challenge to U.S. growth, as borrowers age 0.3% when they transfer funds from spending to debt payments. Nearly 43 million U.S. borrowers owed more than $160 million in student debt, according to the U.S. Department of Education.
JPMorgan’s calculations found that during the three months in March, discretionary spending between chasing cardholders dropped the most among states with higher levels of student loan crime. The data suggest struggling borrowers “face the consequences such as losing credit or reducing spending capital”, said Murat Tasci, an economist at JPMorgan Chase.
Personal consumption accounts for about 70% of the U.S. GDP. Capital economics economist Stephen Brown warned that any pullbacks spent from student loan borrowers could exacerbate the effects of federal layoffs and tariffs as fears of unemployment and inflation expectations are already soaring.
“This is another item in a long list of items that will weigh on consumer spending this year,” he said.
The Ministry of Education stopped repayment of federal student loans in March 2020 at the beginning of the Covid-19 pandemic. The pause ends in 2023, but the Biden administration has implemented numerous periods on borrowers who don't pay back their repayments until the end of 2024.
The education department has also restarted reporting on payments to credit institutions at the beginning of the year, hitting the credit scores of many borrowers. The move has lowered consumer spending to consumers who power the U.S. economy, economists warn.
In the first quarter of 2025, nearly 8% of student debt had a total debt of more than 90 days. This number may rise further as many Americans’ loans remain tolerant, while litigation around the Biden-era relief program (including several income-driven repayment plans) – was released in court.
However, the return of student loan payments is already pushing more families toward crime. According to the New York Fed, U.S. consumer debt was 4.9% overdue in the first quarter of 2025, the highest in a decade.
Trump signed an executive order in March to limit the eligibility of President George W. Bush’s public sector loan forgiveness program, which allows many nonprofit and government employees to cancel their federal student loans after payments 10 years ago.
"The number of households in the United States is getting bigger and bigger," said Mark Zandi, chief economist at Moody's Analytics.