The Biden administration’s 12-month “on-ramp” to repayment for federal student loan borrowers ran out on September 30, 2024. This timeframe came just after the end of the Covid-era payment pause on federal student loans in September 2023. It’s the Federal Reserve Bank of New York’s most alarming estimate. Nearly 9.7 million student loan borrowers are in default on their debt payments.
The end of the payment pause marked a significant shift for borrowers who had been relieved from making payments during the pandemic. The Federal Reserve's report indicates that the volume of past-due federal student loans hit 15.6% by the conclusion of the off-ramp period. Nonetheless, this has led to more than $250 billion in delinquent debt, creating a significant burden on borrowers’ economic security.
The possible ramifications for distressed borrowers are draconian. Even the Federal Reserve cautions that a new student loan delinquency can reduce a borrower’s credit score by more than 150 points. This large drop may limit their capacity to borrow or obtain credit down the line.
"According to these numbers, it is reasonable to expect student loan delinquency to surpass pre-pandemic levels when new delinquencies hit credit reports," stated the Fed's report.
The conclusion of the 12-month relief period has spotlighted the challenges facing many borrowers as they struggle to resume payments. This is a tremendously exciting development because it affects people on a very personal level. It similarly foreshadows larger economic impacts, as millions of borrowers are currently facing delinquency.