Surge in Delinquencies Triggered as Pandemic Pause Sunsets on Student Loan Repayment

A pause put on student loan payments and interest accrual during the pandemic has ended, now requiring the millions of Americans affected to shift money they may have been spending elsewhere back to the payment of college loans. The end of the pause is anticipated to increase the dollar volume of payments in 2025 “by a collective $1 billion to $3 billion a month,” and that “could trim 2025 gross domestic product by about 0.1 percentage point” according to estimates by economists at Morgan Stanley. Loan payments are also likely to begin later this year or early next year for borrowers that were in the Biden-era Saving on a Valuable Education (SAVE) plan, which “allows borrowers to pay based on their income but was challenged in courts.” Although the federal pause ended in the fall of 2023, the pause on the reporting of missed payments to the credit-rating companies didn’t end until the fall of 2024. Among those that have yet to start repayments, which are estimated to be around 5.6 million borrowers, their loans were marked newly delinquent in the first three months of the year — causing a surge in delinquencies, as measured by loans that are more than 90 days past due. In the 1st quarter of 2025, the student loan delinquency rate spiked from 0.7% of the 4th quarter of 2024 to 8% according to reported data from a report by the Federal Reserve Bank of New York, which is about what it was before the pandemic. A delinquency status will lower the borrower’s credit score as further indicated by the New York Fed’s data which revealed that the 2 million borrowers with a near prime rating (620-719) and the 400,000 with a prime rating (over 720) saw their ratings lower on average by 140 points and 177 points respectively. As a result, some borrowers that might have qualified for a credit card, auto loan, or mortgage last year, may no longer qualify, potentially putting additional constraints on spending.

Source:    https://www.wsj.com/economy/student-loans-economy-f6a11598