Why It Matters
The federal student loan default rate reached 21.3% in the third quarter of fiscal 2026, following a sharp jump the report calls a "default cliff" in the fourth quarter of fiscal 2025, according to a new Congressional Research Service (CRS) report.
The default rate rose from 11.2% in the third quarter of fiscal 2025 to 18.2% in the fourth quarter of fiscal 2025, an increase of 7.0 percentage points in a single quarter.
The report attributes the spike to pandemic-era forbearance policies that suppressed delinquency and default rates before borrowers re-entered repayment, and raises questions about whether servicing failures and repayment-plan changes may drive further defaults.
The figures arrive as courts have restricted the Saving on a Valuable Education (SAVE) repayment plan and a new rule implementing statutory changes took effect this summer.
The Big Picture
The Consumer Financial Protection Bureau reported in 2024 that loan servicers routinely made basic payment processing errors, including misreporting payment amounts. The 2023 transfer by the Department of Education (ED) of servicing rights may have contributed to nearly 2 million credit reporting errors, and the report says consumer reporting agencies allegedly were not informed of the transfer.
The report warns that placing SAVE enrollees who do not select an income-driven repayment (IDR) plan into standard repayment plans raises concerns about potential future defaults, citing research that IDR borrowers have lower default rates than those in standard plans.
A March 10 court order prevents ED from implementing SAVE and parts of other income-driven plans, and requires SAVE-forbearance borrowers to choose another plan or be moved to one.
The Bottom Line
Implementation of 2025 statutory changes, which repealed some existing repayment plans and authorized new ones, may further complicate loan administration, the report says. ED finalized a rule implementing those changes on May 1, with an effective date of July 1. Borrowers enrolled in the Pay As You Earn or Income-Contingent Repayment plans must select a new plan by June 30, 2028.
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