More than nine million student loan borrowers in the United States are now past due on their payments after the COVID-era payment pause ended. According to a recent report by the Federal Reserve Bank of New York, this marks a record high in student loan delinquencies, with over $250 billion in delinquent debt held by 9.7 million borrowers.
The payment pause, which began during the pandemic, officially ended in September 2023. However, the Biden administration offered a one-year “on-ramp” period where borrowers were protected from negative consequences of missed payments. This grace period concluded on September 30, 2024, and delinquencies are now impacting credit scores. The New York Fed’s report indicates that student loan delinquencies can reduce a borrower’s credit score by more than 150 points.
The Federal Reserve Bank of New York report shows that 15.6% of federal loans were past due at the end of last year, surpassing pre-pandemic levels. The end of the grace period has led to significant credit score drops for many borrowers, with those holding subprime credit scores experiencing an average deduction of 87 points.
The Biden administration attempted to assist borrowers through programs like the Fresh Start initiative, which allowed defaulted borrowers to get current without penalties. However, only about 900,000 borrowers took advantage of this offer, leaving millions still in default.
The report also highlights confusion around income-driven repayment plans, which were temporarily blocked due to a court ruling but have since reopened. The Trump administration is expected to resume involuntary collections on defaulted loans, further complicating the situation for borrowers.
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