Student Loan Strain?
The total balance on Americans’ student loans was $1.6 trillion as of the first quarter of this year, according to the Federal Reserve Bank of New York. This is roughly equal to the balance on outstanding auto loans, coming in behind only mortgages as the largest type of consumer credit. Outstanding student loans are up from $360 billion two decades ago and have grown from 4 percent of all outstanding consumer credit to 9 percent over that time.
A moratorium on loan payments and interest accrual was enacted in the early days of the pandemic in March 2020 and ultimately remained in place for three and a half years. The payment moratorium was followed by a year-long window during which missed payments were not reported to credit bureaus. The end of the “on ramp” protection period in September 2024 means that past-due balances are now showing up on credit reports.
Indeed, the New York Fed reports that 6 million borrowers, 14 percent of those who hold student loans, were 90 or more days past due or in default in the first quarter. Both 30-day and 90-day delinquency transition rates measured 8 percent in the first quarter. Although both of these metrics are lower than they were before the pandemic, the end of student loan forbearance raises questions about the path of consumer spending and access to credit moving forward.
The resumption of student loan payments is expected to have a nuanced impact. While most analysts expect only a modest hit to overall consumer spending, certain groups of borrowers, particularly those with lower incomes and/or subprime credit, are likely to experience increased financial strain as they adjust their budgets. One casualty of this shift is likely to be reduced discretionary spending in categories like dining out and entertainment.
The resumption of the reporting of missed payments, along with renewed collections efforts, has had a measurable impact on credit scores. The New York Fed’s analysis shows that the average credit score of a newly past-due borrower in the first quarter fell by more than 100 points. Non-prime borrowers make up the large majority of those newly past-due on their student loans. This population, in particular, faces increasingly limited access to new credit and higher borrowing costs when they are able to obtain a loan.
June 12th, 2025
