Betsy Mayotte, Founder of The Institute of Student Loan Advisors, joins Broadcast Retirement Network to discuss the sharp rise in federal student loan defaults and what it means for borrowers today. We break down the key timeline—when delinquency starts affecting credit, and when a loan officially reaches default—plus the real-world consequences like wage and tax refund garnishment, reduced borrowing options, and impacts that can ripple into housing and employment decisions.
Jeffrey Snyder, Broadcast Retirement Network
Joining me now is Betsy Mayotte. She is the founder of the Institute of Student Loan Advisors.
Betsy, oh, it’s great to see you. Thanks for popping by the program this morning.
Betsy Mayotte, The Institute of Student Loan Advisors
Of course.
Jeffrey Snyder, Broadcast Retirement Network
So last time we had you on, we talked about some of these July 1 changes. I think a lot of people are still kind of getting their feel and getting their legs around them. But an area that I wanted to talk to you about was the increase in student loan defaults.
What say you?
Betsy Mayotte, The Institute of Student Loan Advisors
So unfortunately, what I was afraid was going to happen after the COVID pause appears to have happened, the most recent data we’ve seen from the Department of Education shows that over 9 million federal student loan borrowers are in default. So that’s like one in five. And unfortunately, based on some other data and some other things I’m seeing, I think that number is gonna keep going up over the next year or so.
Jeffrey Snyder, Broadcast Retirement Network
So just remind the audience, during COVID, I believe there was a reprieve for a period of time to make those payments because people weren’t working or their hours were significantly affected. Is that correct? Go ahead, I’m sorry.
Betsy Mayotte, The Institute of Student Loan Advisors
So for over three years, federal student loan borrowers didn’t have to make a payment and they were enjoying a 0% interest rate. And then since then, so after that, there was like a year on ramp period where there weren’t really any consequences if you were late. But then that ended at the end of 2024 into a little bit of 2025.
So the end of 2025, which is really the first time anybody could have defaulted, we saw over 3 million default just in that quarter. And then the defaults have just kept piling up ever since then. And now we’re at over the 9 million.
Jeffrey Snyder, Broadcast Retirement Network
That’s a lot, obviously. What is the impact? So how does a default on a student loan impact things like your credit, your ability to borrow in the future and other financial aspects of your life?
Betsy Mayotte, The Institute of Student Loan Advisors
Yeah, I’m actually gonna back it up even a little bit from there just to make sure for your viewers that there’s clarity here. Federal student loans are kind of a unique animal, which you and I have talked about many, many times. You’re not actually in default on a federal student loan unless you’re 270 days past due or over.
Now before that, you’re delinquent. And a delinquent student loan doesn’t negatively affect your credit until you’re at least 90 days past due. So for anybody who’s like missed one payment, I don’t want you to panic.
You should address it to make sure you don’t go further past due. But from a federal student loan perspective, that’s not gonna harm your credit. But once you hit 90 days past due, it will.
And then once you hit 270 days past due or more, that’s when the loan’s in default. And at that point, you’re no longer eligible for a lower payment plan, such as income-based repayment or the new RAP plan. It has already affected your credit, but once the default hit, that is a big whammy.
Like that’s a much bigger whammy to your credit than a 90-day delinquency is. In addition, they can garnish your wages, 15% of your paycheck, your Social Security, your tax refund, you’re not eligible for additional student aid. And to point out a really important thing that you alluded to, Jeff, this trickles down to the other aspects of your financial life.
You might not be able to get a car loan or be approved for an apartment. You might be denied a job or lose your job, depending on the requirements. And any other credit that you have will likely become more expensive because they’re gonna up the interest rates.
Jeffrey Snyder, Broadcast Retirement Network
So Betsy, just to kind of paint a picture of who these individuals are, these are not just the youngsters, right? These are not just kids 22, 23, 24. These could be people my age or people older that co-signed on a loan, right?
Is that correct?
Betsy Mayotte, The Institute of Student Loan Advisors
Well, you don’t have a lot of co-signers on the federal student loan program side. But you bring up another really good point. Student loan debt is not a young person’s issue anymore.
Half of all borrowers over the age of 35, a quarter over 45. And again, I love me some data. If you look at the data, the older the borrower is, the higher the default rate is.
So these are absolutely people like you and me who are trying to save for retirement, probably trying to put their own kids through college, and dealing with other things that have gotten a lot more expensive recently, healthcare costs, gas prices, produce.
Jeffrey Snyder, Broadcast Retirement Network
Everything. I was gonna ask you about that. Let’s talk about the why.
Because you said this, I remember interviewing you during the pandemic. We chatted about things like this, and you warned the audience, you warned me and everyone else, and presumably the other people that you talked to that this was gonna happen. So is it just the confluence of all the factors that are going on where things cost a lot more?
I’m sure that’s a big part of it. Or do people just say, hey, I didn’t have to pay. Let me see what happens if I don’t do anything.
I mean, are those the two extremes? Is it something in the middle?
Betsy Mayotte, The Institute of Student Loan Advisors
It’s a perfect storm of everything you said plus some. So if you remember back to when we chatted during the pandemic, I was saying, it’s great that the government, I think it’s a good thing, it’s the right thing that the government is pausing loans. But I think it’s gonna come back to bite us because the biggest indicator of people not defaulting on their loans is simply having them being in the habit of making the payment.
And we took 44 million people that were in the habit of making their payment out of that habit. And then in the meantime, the economy changed dramatically. And then there was just a kerfuffle of confusion with student loan rules.
The prior administration was saying, hey, we’re trying to do loan forgiveness. And then that got kicked out by the courts. Or we’re gonna try to do this new repayment plan that’s a lot more affordable.
Here’s what your new payment’s gonna be. People budgeted their lives around that safe payment amount. That got thrown out of the court.
And then add all the things that are more expensive that we just mentioned. And it’s the perfect storm of an unaffordable student loan payment.
Jeffrey Snyder, Broadcast Retirement Network
And wages have not kept up either with the inflation. I wanna point out, right? I mean, people are certainly not earning at the rate that inflation has impacted the cost of goods.
Betsy, let’s talk about, what do you do? Because you’re used to maybe not paying your bill or your student loan. Maybe you got used to that.
Do I make a phone call to the issuer, the loan issuer? How do I get myself back on track? Because the loan issuer wants to get paid ultimately, right?
I mean, the federal government wants to get the money back. So are they willing to work with you if you make a phone call to Department of Education or whoever?
Betsy Mayotte, The Institute of Student Loan Advisors
Don’t call the Department of Ed.
Jeffrey Snyder, Broadcast Retirement Network
Do not call the Department of Ed or I was wrong. Don’t listen to me, listen to Betsy.
Betsy Mayotte, The Institute of Student Loan Advisors
You wanna call your loan servicer. And if you don’t know who your loan servicer is, you can find out by logging onto studentaid.gov. Or if you’re like me and you don’t like to talk on the phone you don’t even have to call your loan servicer for the most cases. You can apply for a lower payment plan either on your loan servicer’s website or on studentaid.gov. Now that’s if you’re not in default already. If you’re just delinquent. Now you’ll know if you’re in default because when you log into studentaid.gov there’ll be a big red word that says you’re in default. And if it says that, then you do have to get in touch with, it’ll tell you who to get in touch with.
It’s MyEdDebt. And that’s who’s handling the defaulted loan. Soon to be, the defaulted loans are gonna be transitioning to US Treasury.
But for now, they’re still at the Department of Ed. So if you’re not in default yet, talk about lower payment options, talk about deferments and forbearances. If you are already in default, then you can either consolidate your loans out of default or go through a process called loan rehabilitation.
Loan rehabilitation is great because not only does it put your loan back in good standing, which consolidation does as well, but it removes the default line from your credit report like it never happened.
Jeffrey Snyder, Broadcast Retirement Network
That’s good.
Betsy Mayotte, The Institute of Student Loan Advisors
Yeah.
Jeffrey Snyder, Broadcast Retirement Network
That’s what everyone wants because how are you gonna borrow a car, buy a house, borrow to buy a house, buy a boat? Or if you have children, co-sign for their, or help them with their loan, their student loan.
Betsy Mayotte, The Institute of Student Loan Advisors
Yeah. So Rehab doesn’t get rid of like the 90-day delinquency or those that led up to the default, but it gets rid of that big whammy, the default line. Again, like it was never there in the first place.
So the other thing about consolidation again, it’ll show in your credit that your loan’s back in good standing, but it will show that at one point it was in default. The other thing these days about consolidation is, I mean, it’s a lot faster than Rehab, so it’s tempting, but it will make you lose eligibility for some lower payment options that you might have available to you now. And Rehab does not remove you from that.
Jeffrey Snyder, Broadcast Retirement Network
So if I have questions, if I’m in this circumstance and I just, you know, you outlined a really thoughtful plan, but where do I go if I need one-on-one help, right? Because if you’re like me, you can take all the notes in the world. Sometimes you need someone to kind of walk you through or help walk you through it.
Where do I go?
Betsy Mayotte, The Institute of Student Loan Advisors
Well, there’s a couple of places. I mean, there’s some great information online, studentaid.gov, about all the things I just talked about. And of course, on our website, freestudentloanadvice.org, your loan holder, your loan servicer will be, love the ones with accurate information for you because they can see what you’re eligible for in your account. But if you need help beyond that, you can go to the contact page at freestudentloanadvice.org and send us an email and we’re happy to help you via email as well. And it’s always free.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, and that’s, I wanted to make sure people got that. Last question, you know, not to wade into the political arena, but, you know, we could have, we’ve got an election coming up and I wonder if, does this kind of resonate on the radar screen? You know, until you told me about this, Betsy, and I’m really close to information.
I watch a lot of things, read a lot of things. I wasn’t aware of this, but do you think that this potentially could be addressed either at this, during this, the midterm elections, or depending on what happens, could we see this kind of percolate into future bills?
Betsy Mayotte, The Institute of Student Loan Advisors
I would not be surprised if the talking point of how high student loan defaults are was not part of the political, a part of the election conversation. In fact, I’d be very surprised if it wasn’t, because it’s, I mean, I did some research to see how high defaults have ever been, and this might be the most defaulted borrowers we’ve ever had. You’re going to want to fact check me on that, but if it’s not the highest, it’s darn close to that.
So I don’t, I don’t see how it’s not a talking point during midterms.
Jeffrey Snyder, Broadcast Retirement Network
You know, I think about student loans, I think about inflation, and I think about social security, the trust fund that we covered, you know, that’s not really your bailiwick, but you’re saving for retirement just like I am, so you’re counting on that. It seems like there’s a whole clock of things that are just kind of building up, building up that really need to be addressed. This is one of them.
This is a big part of people’s financial portfolio of services that they’re taking advantage of. Betsy, we’re going to have to leave it there, but look, we’re going to bring you back next month because you always have a lot of great information. Betsy, Mayak, great to see you.
Thanks for joining us, and we look forward to having you back soon.
Betsy Mayotte, The Institute of Student Loan Advisors
Take care.
