About 4 million, or roughly one in five, federal student loan borrowers with a payment due are seriously delinquent, according to a new analysis published Monday by TransUnion. Research from the information and insights company suggests that a significant number of Americans with student loan debt are not able to make payments, did not know payments were due or decided not to pay. The findings come as the Department of Education has vowed to restart collecting federal student loans in default starting Monday following a Covid-era pause. TransUnion found that as of February, a record 20.5% of student loan borrowers with a payment due are “seriously delinquent,” which is defined as 90 days or more past due. (The analysis only includes federal student loan borrowers and only those who are not in forbearance or deferment.) It’s a sharp jump from February 2020 — just before the start of the pandemic — when 11.5%, or about 2.6 million, were seriously delinquent. The previous record was set in September 2012 when 15.4%, or about 3.3 million, borrowers were 90 days or more past due. The TransUnion analysis did not determine why a growing share of borrowers are behind on student loan debt. TransUnion cautioned that its finding of one in five student loan borrowers seriously delinquent may actually understate the problem due to the complexity of the issue. The company said that some borrowers appear to be 90 days or more past due but have not yet been reported as seriously delinquent, likely because they are exploring repayment programs and other options. The Covid-era pause on federal student loan payments ended in September 2023, and borrowers were shielded from the negative effects of a missed payment until October 2024. Some student loan borrowers “may be overstretched” and face a “difficult financial situation,” Michele Raneri, vice president and head of US research and consulting at TransUnion, told CNN. Indeed, 50.8% of subprime federal borrowers with past-due payments are considered seriously delinquent. “Borrowers who have not been repaying will likely have to make a number of challenging budgeting decisions,” Raneri said. Raneri cautioned that while some borrowers may be unable to pay, others may not know payments have resumed or even know how to make the payments. Others, she said, simply may not be willing to pay. No matter the reason, falling behind on student loan debt is costly. According to research from the Federal Reserve Bank of New York, new student loan delinquencies have taken a massive bite out of credit scores. Delinquencies have wiped out an average of 87 points for subprime borrowers and 171 points for those with super prime, or excellent, credit scores. TransUnion found a smaller yet still sizable decline of an average of 63 points from credit scores of federal student loan borrowers who owe money and are delinquent. “This will likely make it harder to get a mortgage and, if they can, will likely result in less favorable interest rates than they may have found previously,” Raneri said. In other words, at a time of already-high interest rates, it will be even more expensive to borrow for those who have fallen behind on student loan debt payments. TransUnion found that roughly 41.9 million people have student loan debt, with the vast majority (39.7 million) owing federal student loans. Roughly 20 million of those with federal student loan debt have had payments deferred or are in forbearance. That leaves about 19.7 million who have owed money on their federal student loan debt over the past three months. Borrowers with weaker credit scores are more likely to fall behind on their federal student loan debt, according to TransUnion’s findings. The research found that while 50.8% of subprime borrowers are seriously delinquent, just 0.9% of those with super prime credit scores are behind. Tyler Wickord, a 29-year-old who lives in Southern California, is struggling to pay off his $12,000 in student loan debt. “It feels like I’m drowning,” Wickord told CNN in a phone interview. “Knowing I have student loan debt to pay along with rent, credit card debt and other debt is definitely a bit of a scary feeling, like the life preserver will never get to me while I’m in the ocean.” Wickord is trying to chip away at his student loan debt even though he currently owes nothing because he is in an income-driven repayment plan. Still, he has taken on a second job just to get by in San Diego county, where, he said, “rent is ridiculous.” “I voluntarily took on student debt, but it adds up way more than you expect,” Wickord said. “There are times it almost feels predatory with lenders willing to give kids who are 18 or 19 this big loan that takes forever to pay off.” CNN’s Alicia Wallace contributed to this report.
Federal student loans are due again. A record percentage of borrowers are seriously delinquent
TruthLens AI Suggested Headline:
"Record Number of Federal Student Loan Borrowers Face Serious Delinquency"
CNN
8.3
TruthLens AI Summary
According to a new analysis by TransUnion, approximately four million federal student loan borrowers, or about one in five, are currently classified as seriously delinquent, meaning they are at least 90 days past due on their payments. This figure represents a significant increase from February 2020, when only 11.5% of borrowers were seriously delinquent. The analysis indicates that the resurgence of student loan payments following the Covid-era pause, which ended in September 2023, has led to financial distress for many borrowers. Factors contributing to this delinquency include borrowers who are unaware payments have resumed, those exploring repayment options, and individuals who may simply choose not to pay. TransUnion's research highlights that the situation could be even worse than reported, as some borrowers who are seriously delinquent may not yet be categorized as such due to the complexities surrounding their financial situations. Additionally, subprime borrowers are particularly affected, with over half of them falling into serious delinquency status, indicating a troubling trend in financial stability among those with student loans.
The implications of this delinquency are significant, affecting borrowers' credit scores and their ability to secure future loans. Research from the Federal Reserve Bank of New York shows that new student loan delinquencies have substantially impacted credit scores, with subprime borrowers losing an average of 87 points and those with excellent credit losing about 171 points. TransUnion's findings reflect a less severe, yet still concerning, average decline of 63 points for borrowers who owe money and are delinquent. As interest rates remain high, those who have fallen behind on their payments may face even steeper costs for future borrowing. The report reveals that out of approximately 41.9 million individuals with student loan debt, the vast majority owe federal loans. With many borrowers already struggling under the weight of their financial obligations, the situation raises questions about the long-term viability of their financial health and the broader implications for the economy.
TruthLens AI Analysis
The article highlights the alarming situation regarding federal student loans in the United States, emphasizing the significant percentage of borrowers who are falling behind on their payments as the Department of Education resumes collections after a pandemic-related pause. The data presented suggests a growing financial struggle among borrowers, raising questions about the broader implications for the economy and society.
Financial Strain on Borrowers
The report indicates that approximately 20.5% of borrowers are now classified as "seriously delinquent," a significant increase from pre-pandemic levels. This sharp rise points to a potential financial crisis for many borrowers, who may be overwhelmed by their debt obligations. The mention of borrowers possibly being "overstretched" suggests a need for a deeper understanding of the underlying causes of this delinquency, which the analysis does not fully address.
Impact of the Pandemic
The resumption of federal student loan payments after a lengthy pause due to COVID-19 is critical. The article indicates that many borrowers may not have been prepared for this transition, leading to a spike in delinquencies. This highlights a disconnect between policy changes and the financial realities faced by borrowers, creating a precarious situation for many families.
Complexity of the Issue
TransUnion's analysis hints at the complexity of the student loan crisis, noting that some borrowers may not yet be reported as seriously delinquent because they are exploring repayment options. This nuance suggests that the reported figures might actually understate the problem, emphasizing the need for comprehensive solutions that address the diverse circumstances of borrowers.
Public Perception and Narrative
The article seems to aim at raising awareness about the struggles faced by student loan borrowers, potentially fostering empathy and support for reform. By framing the issue in terms of a crisis, it encourages readers to consider the broader social implications of student debt and the need for systemic changes in education financing.
Potential Consequences for Society and Economy
The current state of student loan delinquency could have far-reaching effects on the economy, potentially leading to decreased consumer spending and increased financial instability for families. As more borrowers struggle, there could be calls for policy interventions, such as reforms in student loan legislation or expanded repayment options.
Target Audience
This news piece likely resonates more with individuals and communities affected by student debt, including recent graduates, low-income families, and policymakers. By focusing on the difficulties faced by borrowers, the article aims to engage those who are advocating for changes to the student loan system.
Market Reactions
While the immediate impact on markets may be limited, the ongoing issues with student loan debt could influence sectors tied to consumer spending and financial services. Companies that provide financial counseling or alternative loan options might see increased interest as borrowers seek solutions to their debt challenges.
The article provides a crucial snapshot of the current state of federal student loans, highlighting significant issues that warrant public attention and policy consideration. While it effectively raises awareness, the complexity of the situation suggests that more comprehensive discussions will be necessary to fully address the challenges faced by borrowers.