Nearly 10 million student loan borrowers risk credit hit – Washington Examiner
A report from the Federal Reserve Bank of New York indicates that nearly 10 million student loan borrowers are at risk of damaging their credit due to missed payments following the end of the COVID-19 payment pause.Approximately 9.7 million borrowers fell behind on their federal student loan payments, with delinquency rates reaching a high of 15.6% by the end of the payment transition period, resulting in over $250 billion in missed payments. The Biden governance had initiated a 12-month “on-ramp” period to aid borrowers in transitioning back to repayment, during which they were shielded from most penalties for late payments. However, this relief ended on September 30, 2024. The report warns that borrowers may experience significant drops in their credit scores—over 150 points—due to delinquency,which can subsequently lead to reduced credit limits and higher interest rates on future loans.
Nearly 10 million student loan borrowers risk credit hit due to late payments
Approximately 9.7 million student loan borrowers fell behind on their payments after the COVID-19 pandemic-era payment pause ended, according to a new estimate from the Federal Reserve Bank of New York.
“After payments resumed, the volume of past due federal loans quickly returned to pre-pandemic levels and reached a new high of 15.6 percent by the end of the on-ramp period, with more than $250 billion in delinquent debt held by 9.7 million borrowers,” the report stated.
When the COVID-19-era pause on federal student loan payments ended in September 2023, the Biden administration introduced a 12-month “on-ramp” to help borrowers transition back to repayment. During this period, borrowers were protected from most penalties for missing payments, but this relief ended on September 30, 2024.
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“It is reasonable to expect student loan delinquency to surpass pre-pandemic levels when new delinquencies hit credit reports,” the Fed’s report also said.
A student loan delinquency can cause a drop in a borrower’s credit score of over 150 points, resulting in “reduced credit limits, higher interest rates for new loans, and overall lower credit access.”
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