SAN FRANCISCO (KCBS RADIO) – With a good portion of student debt borrowers at least 90 days past due on their payments, it looks like a wave of defaults could be on the horizon. How will this impact the U.S. economy?
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Bloomberg news reporter Claire Ballentine joined KCBS Radio this week to explain.
“There’s just a student loan system that was down for a couple of years. During the pandemic there was this pause – so now it’s kind of revving back up to life,” she told Holly Quan.
An estimated 13% of student loan borrowers are at least 90 days past due on their payments now, up from just under 8.5% in 2020, the year the COVID-19 pandemic began. Now, many of the people who have these loans aren’t in a financial situation that allows them to make proper payments.
According to the Education Data Initiative, student loan debt in the U.S. totaled $1.777 trillion as of March 16 and annual growth resumed last year following a year-over-year (YoY) decline in 2023. Nearly 43 million borrowers have federal student loan debt, which represents more than 92% of all student loan debt. On average, student debt loan balances sit at $38,375 while the average public university student borrows $31,960 to attain a bachelor’s degree.
“We also have borrowers that maybe even forgot about their student loans, they haven’t had to pay them for so long,” Ballentine added. “And also, some that just can’t afford it. We’re seeing signs of consumer strength weakening, and it’s a tough time for a lot of people to afford all of their bills.”
Along with these concerns, changes to the Department of Education also have borrowers concerned. For example, Audacy reported last month that the American Federation of Teachers (AFT) sued President Donald Trump’s administration over access to income-driven repayment (IDR) plans for student loans.
“It’s also just that a lot of people have a lot of questions about their bills. There’s a lot confusion,” said Ballentine. “Even before President Trump came into office, the student loan system was pretty sprawling and complicated and never really worked that well. So, I think the anticipation is that all of these cuts are just going to make the problems worse.”
As borrowers miss payments, their credit score can take a hit.
“It can be a pretty huge hit,” Ballentine said. “I talked to one borrower who didn’t receive any communication about his student loans, he says, and then suddenly saw his credit score decrease by 100 points. So, it’s pretty serious if you’re missing your student loan payments.”
Close to 5% of all federal student loan dollars were in default by the fourth quarter of last year, per the Education Data Initiative. Ballentine noted that, once credit scores have been negatively impacted, it can be difficult to bring them back up.
“This is just another bill that people are going to have to fit into their monthly budget,” she said. “So, you know, for the past four years, they didn’t have to pay [these] bills. And so now, you’re sort of seeing people suddenly having to budget in, you know, $300, $400, $500, even more into their monthly budget.”
That’s money that could be going towards other things, from daily expenses to big purchases. Since it will be going towards servicing loans instead, the money isn’t expected to be driving the U.S. economy, and thus it drives down consumer strength. All of this student loan drama has also resulted in younger generations taking a second look at whether college is a worthwhile investment, Ballentine added.
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