The Silent Squeeze: Why Student Loan Delinquencies Are Surging Among Prime Borrowers

What happens when even the most creditworthy borrowers start falling behind on student loans?

That question just got a new sense of urgency thanks to TransUnion's May 2025 update. The numbers are startling:

“As of February 2025, over 20% of the 19.6 million student loans tracked were 90+ days past due.”

That’s not just a spike. It’s a warning sign. And it’s not coming from the usual suspects.

Nearly one-quarter of these delinquents had prime credit scores before missing payments. That should stop every fintech exec, lender, and credit risk analyst in their tracks.

We’re not seeing cracks on the edges of the system—we’re seeing fractures at the very foundation.

What's Causing the Shift?

This isn’t just about bad budgeting. It’s about broken systems and compounding uncertainty:

• Pandemic-era protections have ended, sending many borrowers back into repayment after a 5-year pause, often without sufficient notice or preparation.

• Administrative confusion and technical errors have made onboarding a nightmare. Some borrowers received late or incorrect bills, others couldn’t even access their loan servicer's platform.

• The Biden administration's SAVE plan—a critical component in offering income-based relief—was blocked in several states, leaving many borrowers stranded in a regulatory gray zone.

The result? Even the most financially disciplined borrowers are being set up to fail.

We’re witnessing the consequences of restarting a massive system without clear coordination, transparency, or consumer support. This isn’t about financial irresponsibility. It’s about a structural failure that affects everyone.

“The system keeps waiting for data to catch up to the crisis—but the crisis is already here. Delinquencies are just the symptom. The root cause is a lack of accountability and creativity in how we help borrowers recover” stated Dan Parks with Yrefy.  

The Credit Quality Disparity: A New Kind of Risk

We often associate delinquency with subprime or near-prime borrowers—those already flagged as higher risk. But the latest data challenges that assumption in a profound way:

• Subprime borrowers (credit scores below 600) have a student loan delinquency rate nearing 28%, which is unfortunately consistent with historic norms.

• Near-prime borrowers (scores between 601-660) follow closely behind at 24%.

• Prime borrowers (scores 661-720), traditionally seen as stable, are now showing a 15% delinquency rate—an unexpected surge.

• Even prime plus and super prime borrowers (scores above 720) are not immune, with delinquencies rising to 11%.

These are the borrowers with mortgages, stable employment, and historically excellent payment histories. If they’re struggling, it means the system is not just squeezing the margins—it’s collapsing the middle.

For credit risk teams, this raises critical questions:

• How should we adjust our early warning indicators?

• Are traditional FICO-based segmentation models still predictive in this post-pandemic economy?

• What hidden fragilities might still exist in other asset classes?

The Bigger Picture for Risk and Compliance

As someone who works closely with ARM industry leaders, this moment feels like a canary in the coal mine. We can’t afford to view student loan debt in isolation anymore. When prime borrowers default, the ripple effects hit every corner of the credit ecosystem:

• Risk models need immediate re-evaluation, especially those relying heavily on credit score bands.

• Servicing systems must be stress-tested for volume and complexity, with contingency playbooks ready to deploy.

• Consumer outreach has to be radically rethought—borrowers are demanding transparency, empathy, and flexibility more than ever.

More importantly, this is an opportunity for organizations to rethink what proactive compliance and holistic borrower support actually look like.

This is the time for cross-functional leadership between compliance, tech, customer success, and ops teams. Because if we’re waiting for "normal" to return, we may already be behind.

Strategic Paradox: Delinquencies Soar, Yet Origination Grows

One of the most puzzling dynamics of the current student loan landscape is the disconnect between repayment distress and new loan demand.

Despite record-high delinquencies—20.5% of all student loans now 90+ days past due—student loan origination is still on the rise.

New federal student loans for the 2024-2025 academic year are projected to increase by over 7%, and private lenders are continuing to push competitive products to college-bound borrowers. It's a striking contradiction: while millions of Americans are struggling to repay, millions more are stepping into the same system.

What explains this paradox?

• Higher education costs continue to rise, leaving few alternatives for students without access to credit.

• Loan forgiveness hopes, spurred by political cycles and policy proposals, may be influencing borrower behavior.

• Financial aid awareness remains low, pushing students toward borrowing over grants or scholarships.

For lenders, this trend raises an uncomfortable question:

Are we underwriting for outcomes, or just for access?

This growth in origination—despite deteriorating performance—underscores the importance of:

• Proactive borrower education at the start of the lending journey

• Upfront income analysis and program-completion forecasting

• Stronger school accountability metrics tied to loan repayment success

If we continue to grow the front end of the pipeline without addressing the bottleneck of default, we’re not solving a crisis—we’re compounding it.

Key Takeaways

• 20.5% of student loans are now 90+ days delinquent as of Feb 2025

• Nearly 25% of those delinquents had prime credit scores before defaulting

• Subprime delinquency is rising as expected, but prime borrower delinquencies have jumped to double digits

• Restart issues, blocked repayment plans, and servicing confusion are fueling the crisis

• Prime credit alone no longer guarantees repayment resilience

Let’s Discuss:

How is your organization preparing for increased defaults from previously low-risk segments? Have your risk assumptions changed? What role does borrower experience play in default prevention?

Drop your thoughts ⬇️ Let’s open up the conversation and share what’s working.