Student loan repayments remain stable — but that’s not likely to last
Student loans and repayments remained stable through the end of last year. That’s the headline from the latest New York Federal Reserve report.
Not terrible news, and yet student loan experts aren’t celebrating. They’re bracing for bad news to come.
There are a few reasons the total $1.6 trillion in U.S. student loan debt hasn’t gone up much: Biden-era forgiveness programs are one. A decline in higher education enrollment is another.
But Dalié Jiménez, who runs the Student Loan Law Initiative at the University of California, Irvine, said the biggest reason was the pandemic-era interest pause.
“For three-plus years, student loan borrowers who had federal loans didn’t have to make any payments on their student loans, and their balances weren’t increasing because interest wasn’t being assessed,” said Jiménez.
But that relief ended at the end of September. Now, nearly 10 million student loan borrowers are past due.
“This isn’t bad news relative to, I think, the really bad news that are coming,” said Jiménez.
Because once you’re 90 days late on a loan payment, it can hurt your credit score. At that point, the debt is reported as “delinquent.”
The Fed said that, based on these numbers, delinquency rates of 90 days or more will likely be higher than they were before the pandemic.
“I’ve had a lot of borrowers be like, ‘Oh my goodness, my credit just dropped, and I wasn’t paying any attention to my student loans until I saw my credit score start to drop,’” said Betsy Mayotte, founder of the Institute of Student Loan Advisors.
She said the delinquency spike is serious.
“The 90-day delinquency numbers are not just a canary in that coal mine. That’s a whole flock of birds in that coal mine. So we have a big concern about future default,” said Mayotte.
Default is what comes after delinquency. For most loans, that happens after it’s delinquent for 270 days. The loan can get sent to collections, and the government can garnish social security benefits or wages — it’s way worse.
And that rate wasn’t great before the pandemic either.
“Before the pandemic, a student loan borrower defaulted every 26 seconds, more than a million people defaulted on a loan every year,” said Mike Pierce, executive director of the Student Loan Protection Center.
He points to two recent executive orders from President Donald Trump. One restricts a program that forgives debt for workers in nonprofit and public sector jobs after a decade of service. The other pauses affordable repayment plans. These two moves are not reflected in this data, and Pierce said they will make even more borrowers default.
“We expect that to be double or triple in the best case scenario here, it’s possible that 5 million student loan borrowers could default this year,” said Pierce.
It takes about nine months to default on a student loan, so those notices likely won’t start showing up until later this year.