Around 9.7 million student loan borrowers have fallen behind on their payments following the expiration of the Covid-era payment pause, according to a new estimate by the Federal Reserve Bank of New York.
The pause, which ended in September 2023, had provided temporary relief to borrowers. During that time, the Biden administration introduced a 12-month “on-ramp” period, shielding borrowers from most consequences of missed payments. However, this grace period ended on Sept. 30, 2024, and delinquency rates have since soared.
By the conclusion of the off-ramp period, the New York Fed estimates that 15.6% of federal student loans were past due, equating to more than $250 billion in delinquent debt.
The Fed’s report suggests that student loan delinquency is expected to exceed pre-pandemic levels once new delinquencies appear on credit reports. The impact of these delinquencies is significant, with a borrower’s credit score potentially dropping by more than 150 points due to a new student loan delinquency.
This surge in delinquency reflects the ongoing challenges borrowers face as they resume payments, raising concerns over the long-term financial implications for millions of Americans.