Stagflation and Record Highs in Student Loan Defaults

The U.S. economy is facing a major turning point as it faces stagflation. Although official reports may downplay the danger, rising debt, tighter immigration rules, and ongoing inflation suggest that stagflation, a mix of slow growth and high prices, is becoming more likely.

This commentary looks at three major challenges: growing household debt, a shrinking foreign labor supply, and the inflationary impact of tariffs. Together, these forces are reshaping the financial future of the country, and you need to be prepared to ride out the financial storm.

By Alexander Hernandez, J.D., Professor, and Author of Consumer Bankruptcy Law (Routledge).

Expert Opinion and Analysis.

Updated on October 25, 2025.

Listen: The Professor’s Audio Briefing.

Student Loan Delinquencies Surge to Record Highs

As a professor who focuses on consumer bankruptcy, I can say that many households are under serious financial strain, and student loans are a major reason why.

The latest report from the New York Fed is stark: in the second quarter of 2025, 12.9% of student debt was seriously delinquent (90+ days past due). This rate is the highest since record-keeping began in 2003, and the consequences for American consumers are severe and immediate:

• Financial Instability: For millions, this delinquency spike is leading to wage garnishment, stripping away disposable income required to cover essential household expenses.
• Credit Collapse: Borrowers are seeing their credit scores plummet by 100 to 150 points, effectively eliminating access to affordable credit for major purchases (auto loans, housing) and pushing them toward predatory financing.

Student loan debt has reached $1.64 trillion, making it the third-largest type of consumer debt after mortgages and car loans. It’s a serious financial problem. At the same time, medical debt remains the leading cause of personal bankruptcy. When these two pressures combine, they can push people into crisis

Immigration Policy and the Labor Supply Shock: The Hidden Cost of Immigration Crackdowns

The Border Bond: Visitors from certain countries, like Malawi and Zambia, are required to pay a $15,000 security bond to enter the U.S. This rule is meant to prevent visa overstays, but in practice, it creates a major financial barrier. It discourages legitimate travel, skilled immigration, and foreign investment, hurting tourism in cities like Miami, Naples, and Las Vegas.

Customs and Border Protection Deterrent: U.S. Customs and Border Protection has been using strong surveillance powers, including checking the phones of citizens and visitors. This creates a sense of risk and hostility that discourages international travelers and investors. As a result, the U.S. loses valuable spending from people who might otherwise visit or invest.

There are now serious doubts about the accuracy of the data used to track this crisis. Payroll numbers for May and June were revised sharply, the second-biggest change ever outside of a recession. This led to the controversial firing of Dr. Erika McEntarfer, who led the Bureau of Labor Statistics. As a result, trust in U.S. economic data has been shaken, raising concerns among Wall Street, foreign governments, and global companies.

It’s Stagflation, Not A Recession

The third major pressure point is the inflationary impact of tariffs. While trade policy is often debated in political terms, the economic reality is straightforward: tariffs are a tax paid by the consumer.

The price of core goods is currently at its highest in 18 months, reflecting a U.S. tariff rate of 15%. When a 15% tariff is imposed on an imported product, companies must either absorb the cost and suffer a loss, or pass the expense on to the end consumer. There are no other options.

• Corporations Respond: Major manufacturers like John Deere have openly reported hundreds of millions in tariff hits, forcing them to raise prices on agricultural and lawn equipment. Their stock dropped 7% today in response, demonstrating that the financial market correctly prices in these policy risks.
• Consumer Burden: Goldman Sachs has estimated that while consumers initially bore only 22% of tariff costs, that share is expected to rise sharply to 67% as corporate margins tighten.

Stagflation is when prices keep rising while the economy stays weak—and that’s exactly what’s happening now. Wages aren’t keeping up, consumer debt is high, and the cost of living keeps climbing. On top of that, the national debt has hit $37 trillion—five years earlier than expected, making the country’s financial situation even more fragile

The Professor’s Take

The U.S. economy is being reshaped by three major forces: fewer available workers due to immigration policies, rising household debt and missed payments, and higher prices from tariffs.

These aren’t short-term problems; they mark a deeper shift in how the economy works. With record student loan defaults and tighter access to credit, many Americans are feeling the strain. Add in unpredictable policy changes, and we’re entering a “new normal” of constant uncertainty, rising costs, and growing financial pressure.

Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. Paralegals and students who are buying single copies can do so via Amazon Books. To access my YouTube channel, click this link. You can also listen to my podcast on Spotify.

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Updated initially on August 14, 2025.