Millions of Student Loan Borrowers Face Delinquency Risk as Payments Resume

After a three-year pandemic pause, student loan payments are set to resume in October – and experts warn that many borrowers are at risk of falling behind.

“It’s going to be a rude awakening,” said Persis Yu, deputy executive director at the Student Borrower Protection Center. “A lot of people have gotten used to not making payments.”

7.3 Million Borrowers Already Behind

Even before the payment pause, 7.3 million federal student loan borrowers were in default or over 90 days delinquent as of December 2019, according to the Federal Reserve Bank of New York. That’s over 17% of all borrowers.

Delinquencies are expected to surge as payments restart. An estimated 9 million borrowers will fall behind within the first year, predicts Betsy Mayotte, president of The Institute of Student Loan Advisors.

“Many borrowers, especially those who were already struggling, are going to have a very difficult time adjusting,” Mayotte said.

Missed Payments Can Tank Credit Scores

Just one missed payment can drop a borrower’s credit score by 50-90 points, according to FICO data. Subsequent missed payments can tank scores by over 150 points.

“It can really wreck your credit in a hurry,” said Ted Rossman, senior industry analyst at Bankrate. “Missing student loan payments sends up a huge red flag to lenders.”

Lower credit scores make it harder and more expensive to secure mortgages, auto loans, credit cards, apartment rentals and even some jobs. A score under 580 is considered “poor” by most lenders.

Borrowers Urged to Prepare Now

Experts say borrowers should start preparing now for payments to resume in October. Key steps include:

• Updating contact info with loan servicers

• Reviewing payment amounts & due dates

• Setting up autopay to avoid missed payments

• Applying for income-driven repayment plans

• Seeking a temporary hardship deferment if needed

“Don’t stick your head in the sand,” Rossman advised. “The worst thing you can do is ignore it and hope it goes away. It won’t.”

Debt Forgiveness Could Wipe Slate Clean for Millions

President Biden is considering forgiving $10,000 in federal student debt per borrower. If enacted, the move could wipe out balances entirely for 15 million borrowers.

However, until a decision is announced, experts say borrowers should plan for payments to resume. “There are no guarantees,” Mayotte noted. “Borrowers need to prepare for the worst and hope for the best.”