Millions Face Credit Damage as Student Loan Delinquencies Soar

TransUnion has released concerning statistics showing that about 4 million Americans with federal student loans are more than 90 days late on their payments, classifying them as seriously delinquent. This group represents roughly 20% of borrowers with a current payment due.

Many affected borrowers either can’t afford the payments, are unaware they’re required, or have chosen not to pay. The restart of debt collections by the Department of Education, effective this week, is bringing the issue into sharper focus.

As of February, delinquency rates among federal student loan borrowers hit a new high. These figures exclude those in deferment or forbearance but reflect a significant jump from pre-pandemic numbers.

In February 2020, just before the pandemic disrupted financial norms, 11.5% of student loan borrowers were seriously behind. Even at the peak of the 2012 crisis, the rate was lower than today’s 20.5%.

TransUnion’s analysis cautioned that the actual delinquency rate may be higher than reported, with some borrowers yet to be officially listed as overdue due to pending applications for repayment programs.

Although the pandemic pause ended in 2023, borrowers had until October 2024 before missed payments would hurt their credit. However, financial challenges continue to mount, especially for those already struggling before the pandemic.

More than half of borrowers with subprime credit are now seriously delinquent. These missed payments are taking a heavy toll on credit scores, severely affecting future borrowing options like mortgages or car loans.

Individuals like Tyler Wickord exemplify the crisis. Burdened with debt and high rent, he’s working two jobs and still struggling. “You don’t realize how much this snowballs,” he said, questioning the ethics of issuing large loans to teenagers with limited financial literacy.