A staggering 9.7 million student loan borrowers became past due on their payments after the Covid-era payment pause ended, according to a new estimate from the Federal Reserve Bank of New York. This sharp rise in delinquencies underscores the financial strain many borrowers are facing as they adjust to resumed payments.
The End of the Repayment “On-Ramp”
The Covid-era federal student loan pause, which began in March 2020, provided borrowers with a temporary reprieve from payments and interest accumulation. After multiple extensions, this relief officially ended in September 2023.
Recognizing the potential hardship for borrowers, the Biden administration implemented a 12-month “on-ramp” to repayment. This period shielded borrowers from severe consequences, such as credit score damage and collections, if they fell behind on payments.
However, the on-ramp ended on September 30, 2024, meaning that missed payments can now be reported to credit bureaus, leading to serious financial repercussions.
By the end of the on-ramp period, the New York Fed estimates that 15.6% of federal student loan balances were past due, amounting to more than $250 billion in delinquent debt. The Fed’s report states: “According to these numbers, it is reasonable to expect student loan delinquency to surpass pre-pandemic levels when new delinquencies hit credit reports.”
How Delinquencies Impact Borrowers
Once a student loan delinquency is reported, it can cause a borrower’s credit score to drop by more than 150 points, making it harder to qualify for loans, credit cards, or even housing. Borrowers who continue to miss payments could eventually face default, which can lead to wage garnishment and tax refund seizures.
What Borrowers Can Do Now
If you’re struggling with repayment, here are some steps to consider:
- Explore Income-Driven Repayment Plans (IDRs): These plans can lower monthly payments based on your income and family size.
- Apply for Deferment or Forbearance (if eligible): While interest may continue to accrue, these options can provide temporary relief if you’re facing financial hardship.
- Check for Loan Forgiveness Programs: If you work in public service, education, or certain nonprofit sectors, you may be eligible for loan forgiveness programs like Public Service Loan Forgiveness (PSLF).
- Communicate With Your Loan Servicer: If you’re at risk of missing payments, reach out to your servicer to discuss options. Some lenders may offer temporary solutions to keep your loans in good standing.
As millions of borrowers navigate this transition, understanding the consequences of delinquency and exploring available repayment options can make a big difference in financial stability. If you or someone you know is struggling with student loan payments, now is the time to take action and seek guidance.
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