Illinois Student Loan Defaults Rise to Nearly One in Five Borrowers

Nearly one in five federal student loan borrowers in Illinois is now in default, underscoring the financial challenges many borrowers continue to face as pandemic-era repayment protections have ended.

According to the latest data from the U.S. Department of Education’s Federal Student Aid office, approximately 295,000 Illinois borrowers are currently in default. That represents 18.4% of the state’s 1.601 million federal student loan borrowers.

The increase follows the expiration of federal payment relief measures that had temporarily shielded borrowers from the consequences of missed payments. Economists warn the growing number of defaults could have broader implications beyond individual borrowers, affecting consumer spending and the state’s overall economic activity.

The Illinois Student Assistance Commission (ISAC) estimates that borrowers in the state now hold roughly $7.5 billion in defaulted federal student loan debt. That accounts for about 11.5% of Illinois’ total outstanding federal student loan balance of approximately $65.3 billion.

Default Rates Reflect Financial Pressures

Rick Presch, an economics professor at Illinois Valley Community College, said the increase in defaults highlights the financial strain facing many households.

“These people simply don’t have that extra money to make these repayments,” Presch said. “Things are already tough, and the monthly repayment is going to be quite a crimp into their budget.”

Under federal rules, most student loans enter default after approximately 270 days without a required payment. Once a loan reaches default status, it is no longer considered in good standing and borrowers may become subject to collection efforts and other penalties.

Broader Economic Effects Could Follow

Presch said rising student loan repayments may also affect the broader economy by reducing consumer spending.

“We need these people out buying houses, going out to dinner, raising families and buying diapers for little people,” Presch said. “We need them spending this money to stimulate the economy.”

Because consumer spending accounts for roughly 70% of U.S. economic activity, Presch believes increasing loan defaults, coupled with repayment obligations, could slow economic growth. He described continued collection efforts and wage garnishment as “penny wise and dollar foolish.”

“When we force this large section of society to pay back the student loans, that’s less economic activity,” Presch said. “That affects all of us. That’s less opportunities for all of us.”

Why Borrowers Fall Into Default

Lynne Baker, managing director of communications for the Illinois Student Assistance Commission, said borrowers can enter default for a variety of reasons.

Students who leave college before completing their degree are generally at greater risk because they must begin repaying their loans without the increased earning potential that often comes with graduation.

“Borrowers who begin college but do not complete their program are more likely to default,” Baker said. “These students have student loans they have to start paying back but no degree that could lead to a better-paying job.”

She added that job loss, unexpected financial emergencies, changes to repayment plans, and a lack of awareness about available repayment options can also contribute to delinquency.

“In these situations, borrowers may have to prioritize paying for daily necessities, including housing, food and clothing, over their student loan payments,” Baker said.

Consequences of Default

Defaulting on a federal student loan can have long-lasting financial consequences.

According to Baker, loan servicers report defaults to national credit bureaus, which can negatively affect a borrower’s credit profile and make it more difficult to qualify for future loans, rent housing, or access other forms of credit.

Borrowers in default may also face wage garnishment, the withholding of federal tax refunds or certain government benefits, the loss of eligibility for additional federal student aid, and reduced access to repayment programs designed to ease financial hardship.

Pandemic Relief Delayed Defaults

Federal student loan payments were suspended during the COVID-19 pandemic, allowing borrowers to go more than three years without mandatory monthly payments.

After payments resumed in 2023, the Biden administration introduced a one-year transition period that temporarily delayed penalties for missed payments. That relief expired in the fall of 2024, allowing borrowers who remained delinquent for roughly nine months to enter default.

Since then, defaults have increased sharply across the country. An Associated Press analysis found that approximately 9.5 million federal student loan borrowers nationwide are now in default, exceeding the pre-pandemic record. The number of borrowers with defaulted loans increased by more than 4.2 million between April 2025 and March 2026.

Moody’s Analytics also warned earlier this year that wage garnishments are likely to expand over the coming year, describing the trend as “an additional headwind in an increasingly fragile economy.”

Repayment Assistance Remains Available

Despite the rise in defaults, Baker said borrowers have several options to regain good standing.

These include switching to repayment plans with lower monthly payments, enrolling in an Income-Driven Repayment plan, consolidating eligible loans, or applying for deferment or forbearance where appropriate.

She encouraged borrowers experiencing financial difficulties to contact their loan servicer promptly and review available repayment options before their situation worsens.

Baker also recommended using the U.S. Department of Education’s Student Loan Debt Collection Assistant, which provides information about repayment alternatives and helps borrowers prepare before speaking with their loan servicer.

“Checking out this tool can also help borrowers feel more informed and confident when they call their loan servicer,” Baker said.

Experts say that while borrowers facing financial hardship have options, acting early remains the most effective way to avoid default and the collection actions that can follow.