Student loans from the federal government are once more becoming due. An unprecedented number of debtors are significantly behind on their repayments.
Revamped Take:
In a chilling revelation, TransUnion, a leading insights company, revealed that approximately 4 million federal student loan borrowers—around one in five—are grappling with severe delinquency, with payments 90 days or more past due. This staggering number is according to an analysis published by TransUnion on Monday.
The research pointed towards a concerning trend of Americans struggling to keep up with their student loan payments, citing reasons ranging from financial difficulties, lack of awareness, to deliberate non-payment.
This disheartening figure comes at a critical juncture, as the Department of Education prepares to restart collecting federal student loans in default, starting Monday, following a Covid-era freeze.
As of February, an astounding 20.5% of borrowers with a payment due were majorly delinquent. This represents a significant jump from February 2020, just before the pandemic began, when only 11.5% were delinquent. The previous record was set in September 2012, with 15.4% of borrowers behind on payments.
However, TransUnion's findings may understate the severity of the issue. The company cautioned that some borrowers who seem to be 90 days or more past due haven't yet been reported as seriously delinquent. This could be due to these borrowers actively exploring repayment programs and other options.
The Covid-era pause on federal student loan payments ended in September 2023, with borrowers being protected from the negative effects of a missed payment until October 2024.
Michele Raneri, vice president and head of US research and consulting at TransUnion, shared her concerns, stating that some borrowers may be financially stretched and struggling, while others might not be aware that their payments have resumed, or even know how to make them. Some borrowers, she added, might simply choose not to pay.
Luxuriating in debt comes with a hefty price tag. Research from the Federal Reserve Bank of New York reveals that student loan delinquencies have caused considerable damage to credit scores. Delinquencies have resulted in an average loss of 87 points for subprime borrowers and 171 points for those with super prime, or excellent, credit scores. TransUnion's analysis revealed a smaller yet still notable drop of 63 points in average credit scores for federal student loan borrowers who owe money and are delinquent.
In other words, at a time when interest rates are already high, falling behind on student loan debt payments could make borrowing even more expensive.
Approximately 41.9 million people carry student loan debt, with the majority (39.7 million) owing federal student loans. Roughly 20 million of these with federal student loan debt have had their payments deferred or are in forbearance. This leaves about 19.7 million borrowers who have been actively repaying their federal student loans.
Borrowers with weaker credit scores are more likely to fall behind on their federal student loan repayments, according to TransUnion's findings. The research showed that 50.8% of subprime borrowers are seriously delinquent, while just 0.9% of those with super prime credit scores are behind.
Tyler Wickord, a 29-year-old resident of Southern California, is grappling with a $12,000 student loan debt burden. "It feels like I'm drowning," Wickord shared with CNN. "Knowing I have student loan debt to pay, along with rent, credit card debt, and other expenses, is definitely a bit scary."
Despite being in an income-driven repayment plan, Wickord is working multiple jobs just to make ends meet in San Diego county, where, he says, "rent is ridiculous."
"I voluntarily took on student debt, but it adds up way more than I expected," Wickord lamented. "There are times it almost feels predatory with lenders willing to give kids who are 18 or 19 this big loan that takes forever to pay off."
- The dire state of personal-finance, particularly in relation to student-loan debt, is a growing concern in both politics and education-and-self-development, as evidenced by TransUnion's report revealing that approximately 4 million federal student loan borrowers are severely delinquent, with payments 90 days or more past due.
- With the rise in finance-related issues, such as student-loan delinquencies, it becomes crucial for individuals to educate themselves on personal-finance management, as the impact of delinquencies can significantly harm one's credit score, as seen in the Federal Reserve Bank of New York's research, where delinquencies resulted in an average loss of 87 points for subprime borrowers and 171 points for those with super prime credit scores.
