The landscape around federal student loan borrowers in the United States is increasingly alarming. A recent analysis by TransUnion has brought to light significant issues within this demographic, revealing that approximately 4 million individuals—roughly one in five borrowers with a payment due—are classified as seriously delinquent. This serious delinquency is defined as being 90 days or more past due on payments. The report, released Monday, highlights the growing struggle faced by millions of Americans laden with student debt, raising questions about the overall stability and financial well-being of this sizable group.
The study conducted by TransUnion indicates that many borrowers are grappling with the implications of student loans in the post-pandemic era. It suggests that those with student loan debts either lack the means to make payments, have not been informed about payment schedules, or have consciously opted out of making payments altogether. This analysis emerges during a pivotal time as the U.S. Department of Education prepares to recommence the collection of federal student loans that had been paused due to the COVID-19 pandemic. The resumption of payments began on Monday, placing additional pressure on borrowers already struggling with their finances.
TransUnion’s findings further assert that in February, a staggering 20.5% of student loan borrowers were in this seriously delinquent category—up significantly from 11.5% reported in February 2020, just before the pandemic changed the financial landscape. This increase marks an alarming trend, with the previous record of serious delinquency set back in September 2012 at 15.4%. While TransUnion’s analysis provides a stark depiction of the current situation, it does not delve into the specific reasons behind the escalating delinquency among borrowers.
Interestingly, TransUnion also pointed out that their estimates could potentially underrepresent the issue. They noted that some borrowers may be 90 days or more past due on their payments but have not yet received a serious delinquency designation due to their engagement with repayment programs, suggesting that the problem could be even more widespread.
The pause in federal student loan payments instituted during the pandemic officially ended in September 2023, leaving borrowers to navigate the complexities of resuming payments without the safety net they had grown accustomed to. Michele Raneri, vice president and head of U.S. research and consulting at TransUnion, noted that many borrowers might be “overstretched” financially, navigating a variety of debts and expenses. The statistics serve to emphasize this notion: over half (50.8%) of subprime federal borrowers—those with lower credit ratings—are classified as seriously delinquent.
Financial strain from missed payments doesn’t merely stay isolated but extends into other aspects of borrowers’ lives, notably impacting their credit scores. A report from the Federal Reserve Bank of New York indicated that new delinquencies have substantially harmed borrowers’ credit—subprime borrowers have suffered an average credit score drop of 87 points, while those with super prime credit scores experienced an even steeper decline of 171 points. TransUnion’s analysis corroborated this, reporting a reduction of an average of 63 points for borrowers behind on their payments—compounding their financial difficulties and severely hindering their ability to secure loans, such as mortgages, often at much higher interest rates.
The sheer number of borrowers with student debt is considerable, with approximately 41.9 million individuals finding themselves in this situation—39.7 million of whom hold federal student loans. Out of this mass, nearly 20 million have opted for payment deferments or are in forbearance, leaving about 19.7 million actively facing payment obligations over the past three months.
Furthermore, the disparity in how different credit categories are affected is stark. While a notable 50.8% of subprime borrowers are seriously delinquent, only 0.9% of super prime borrowers find themselves in the same situation. This defines a troubling trend where financial burdens from education disproportionately affect those less financially stable.
Personal accounts further illustrate these systemic issues. For instance, Tyler Wickord, a 29-year-old from Southern California, highlighted his struggles with $12,000 in student loans amid rising living costs in San Diego. He expressed feelings of being overwhelmed as he balances rent and credit card debt alongside his student loans. Despite being in an income-driven repayment plan, Wickord is under considerable stress, having taken on a second job to manage his financial obligations. His insights underscore the often overwhelming nature of student debt, illuminating how quickly it can escalate beyond manageable limits, creating a cycle of financial distress for young borrowers.
This multifaceted issue of student loan delinquency commands attention as it compounds various personal, economic, and social challenges, creating a ripple effect that can influence borrowers’ lives for years to come.