Why are student loan borrowers falling behind on payments?
Student loans are coming due, but they are not necessarily getting paid. Missed and late payments are surging to record levels right as the Trump administration attempts to dismantle the agency that oversees the loans.
A "record share" of student loan debt is delinquent, said Axios. Nearly a quarter of borrowers — roughly 9 million Americans — are behind on their payments, a development that threatens to hurt the credit scores of young borrowers. The growing number of delinquencies is a sign there is "more stress on American consumers than previously known." The eventual result could be "reduced credit limits, higher interest rates for new loans, and overall lower credit access" for a generation of college graduates, said New York Fed research economists Daniel Mangrum and Crystal Wang.
The rise in delinquencies comes as the Trump administration tries to move oversight of student loans from the Education Department to the Small Business Administration. The SBA is "slated to lose 43% of its staff," said Politico, raising concerns even among the president's GOP allies. "Many Republicans are worried" about whether SBA can handle "the complex system of servicers, borrowers and loan applications."
What did the commentators say?
The student loan program "is in critical condition" Bloomberg said. A Covid-era freeze on loan payments, coupled with an "ill-advised" Biden administration effort to forgive loans, exacerbated an existing problem: "Too many students have loans they can't repay." The Trump administration "isn't helping," though. Its plans to dismantle the Education Department might be smart in the "long run," but at the moment "it's making matters worse," the outlet added. For Congress and the White House, "fixing the current student loan mess should be job No. 1."
Republicans should "kill loan forgiveness for government and nonprofit workers," said The Wall Street Journal. President Donald Trump in March moved to limit a federal program that forgives student loans in "public service" after they have made 10 years of payments. The program "rewards a politically favored group of workers" and diverts talent away from private business. Congress should eliminate the "subsidy" for public service and use the money to "pay for an extension of the 2017 tax cuts that benefit all workers" instead, added the Journal.
What next?
It's "not clear Trump can move student loans" to SBA, said CNBC. Only Congress can demolish the Education Department, and the law says the department's Federal Student Aid is responsible for the loans. "Borrowers don't know what to do" for now, said Persis Yu at the Student Borrower Protection Center.
Young workers are meanwhile increasingly faced with a choice, said Marketplace: "Pay the student loan debt, the credit card debt or the rent?" Missing student loan payments "could lead to lifetime consequences," said University of Cambridge professor Constantine Yannelis. People with lower credit scores will find it more difficult to buy a home, which in turn could mean they have "have less money in retirement, and we could be seeing the echoes of this problem for decades to come."