Delinquent Student Loan Borrowers Push Credit Cards Down the Payment Ladder

With federal student loan collections resuming, borrowers are now more likely to pay those debts before their credit cards, a new TransUnion survey found.

The findings signal a potential uptick in late or missed credit card payments as we enter the final quarter of 2025.

The U.S. Department of Education paused collections on defaulted federal student loans in March 2020, but announced this April that collections would resume in May.

At that time, the department also announced that the Office of Federal Student Aid would restart involuntary collections for borrowers in default — including wage garnishment, according to a press release.

The TransUnion survey looks at how federal student loan borrowers would manage their bills if the government began garnishing their wages. Respondents said that, in that scenario, they would prioritize student loan payments over credit cards and unsecured personal loans.

The U.S. Department of Education resumed collecting on defaulted federal student loans in May 2025.

Many credit card issuers may already have noticed a shift in some of their customers’ payment behaviors this year. 

TransUnion data shows that the delinquency rates among seriously delinquent borrowers of federal student loans rose by 479% on credit cards over the period from December 2024 to June 2025.

The same measure on unsecured personal loans rose by 186% over the same time period. Meanwhile, the delinquency rate on mortgage and auto loans for those borrowers saw increases of 20% and 67%, respectively, from December 2024 to June 2025.

Credit card issuers may see themselves at a disadvantage as consumers prioritize other debts ahead of their card balances. But the trend also gives issuers a chance to deepen their relationships with cardholders.

The new TransUnion survey arrives as many consumers prepare to lean more heavily on their credit cards in the final stretch of 2025.

In early December 2024, Payments Dive reported that 48% of survey respondents planned to spend up to the limit on at least one of their credit cards before the holiday season ended.  

We checked in with Joshua Turnbull, Senior Vice President and Head of Consumer Lending with TransUnion, to better understand TransUnion’s latest findings and what they signal for lenders.

Turnbull told us that creditors should assess how many of their customers may be subject to wage garnishment to repay federal student loans.

TransUnion offers a tool that helps credit card issuers monitor the potential risks federal student loan borrowers may pose to their card portfolios. The solution gives lenders insight into the types of student loans a borrower holds, along with balances and repayment histories.

But assessing the risk is just the first step — lenders can take additional measures to address issues that could affect a borrower’s ability to repay credit balances.

“I think the other thing that lenders can be doing now is proactively engaging affected consumers,” Turnbull told us. “They can help them to understand what may be coming their way, and they can also really cement the relationships they have with their customers.”

Lenders that step in to support borrowers falling behind on credit payments may see a boost in customer satisfaction — a key driver of long-term loyalty.

“I would assume there’s an opportunity to buy yourself a lot of goodwill in reaching out to impacted borrowers and giving them a helping hand,” Turnbull told us.

Lenders that understand how many of their customers are struggling with federal student loans are better positioned to manage risk. They can implement programs to educate borrowers and safeguard future profits. Yet addressing the needs of current customers is only part of the challenge.

Many credit card issuers are publicly traded, and their product managers still pursue growth targets for their card portfolios — even when external pressures increase.

Issuers can shift strategies to manage the risk associated with serving customers who aren’t actively making payments on their federal student loans.

Turnbull told us of some moves issuers can make to safeguard their strategies for bringing in new customers. 

“If I’m running an acquisition campaign, I think I would try to identify anyone who has a federal student loan who is not actively making payments on it now,” he said. “And I might then choose to look elsewhere in terms of solicitations I’m making so I don’t extend credit to someone who’s already showing signs of struggling to make a student loan payment.”

An issuer that doesn’t want to overlook this segment of the population could offer a secured card or a card with a lower credit limit than usual for new customers.

These approaches can help the issuer bring in cardholders who, despite current credit challenges, may soon improve their credit and become highly valuable customers.