About 92%<\/u><\/a><\/ps-link> of student loans are financed by the federal government, not private lenders. But as the pressure rises on America’s 42.7 million student borrowers, payments on these loans could crowd out other expenses.<\/p>\n“There’s definitely a spillover with other debts,” Rossman said. “Some of why people are carrying credit card debt is because they don’t have the money, because maybe they are repaying their student loans. \u2026 That’s a big trend we’ve seen in recent years.”<\/p>\n
The missed payments can also have other consequences. As student borrowers fall into delinquency or even default, their credit scores could deteriorate, making it harder to obtain a credit card, take out an auto loan or get approved for a mortgage. All of that can make a dent in banks’ consumer lending business.<\/p>\n
By one measure, student loan delinquencies still fell short of their pre-pandemic levels during the first quarter. In the last three months of 2019, just before COVID-19 arrived in the U.S., the portion of student loans that were 90 or more days past due was 9.21% \u2014 more than one percentage point above the rate last quarter.<\/p>\n
Others believe there’s more trouble beneath the surface.<\/p>\n
Economists at Morgan Stanley, using data from the Department of Education and Federal Student Aid, recently calculated that in the fourth quarter of 2019, 22% of all federal student loans were either in default or deferment, while 10% of them were in forbearance. In the first quarter of this year, the percentage of those loans that were in default or deferment had fallen to 16%, but the share that were in forbearance had soared to 36%.<\/p>\n
“We estimate the delinquency rate is still well above pre-Covid levels,” the Morgan Stanley economists wrote in a May 5 report.<\/p>\n
Furthermore, some experts don’t think the delinquency rates are finished rising. Rossman, for one, believes the full impact of the on-ramp won’t be felt until July, when some of the delinquent loans will cross the border into default.<\/p>\n
“Even though I believe the current figures are lower [than in 2019], the trajectory upward has been rapid,” Rossman said. “I do think that these numbers are going to go higher.”<\/p>\n
Another challenge is that, since the end of the pandemic, inflation has remained stubbornly elevated. As student borrowers got a reprieve during the repayment pause, rising prices often filled in the gap.<\/p>\n
“A lot of people got used to not paying these student loans for a while, and then at the same time their housing bills and insurance and groceries and everything else went up,” Rossman said. “It just became harder to fit that into the budget.”<\/p>\n
In the first quarter of 2025, total U.S. household debt reached $18.2 trillion, up $516 billion from the same period last year, according to the New York Fed’s report. The overall rate of serious delinquency, defined as 90 days or more past due, was 2.45% \u2014 up from 1.54% a year earlier.<\/p>\n
For lenders, it all adds up to a more stretched consumer, struggling to balance education debts with today’s bills.<\/p>\n
“It’s relevant from a spending and debt standpoint, but also from a delinquency standpoint,” Rossman said. “If there’s not enough money for one thing, there may not be enough money for another.”<\/p>\n<\/div>\n
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