U.S. Student Loan Defaults Surge, Raising Alarm Over Millions in Delinquency

[Financial News, New York = Reporter Lee Byung-chul]Student loan defaults are surging in the United States, deepening concerns about instability in the credit market. As the repayment pause that lasted for years after the COVID-19 pandemic has ended, millions of borrowers are once again struggling to make payments.
In a report released on the 12th local time, the Federal Reserve Bank of New York said about 1 million student loan borrowers fell into default in the fourth quarter of last year. It added that another 2.6 million entered default in the first quarter of this year.
Researchers said the latest wave of defaults has been concentrated among older borrowers and residents of the southern United States. They noted that even borrowers with no delinquency history before the COVID-19 pandemic are now falling into nonpayment in large numbers.
There are now more than 40 million federal student loan borrowers in the United States. According to U.S. Department of Education data, about 7.7 million were already in default before the pandemic.
Markets are also watching the possibility that the Biden administration's Saving on a Valuable Education (SAVE) Plan could lead to more distress. The Federal Reserve Bank of New York warned that "a second wave of defaults could emerge," since millions of SAVE Plan enrollees will have to resume repayment.
The SAVE Plan was introduced to ease repayment burdens for low-income student loan borrowers. However, after the United States Court of Appeals ruled earlier this year to end the program, borrowers have come under renewed pressure to repay. SAVE Plan enrollees had effectively been under a repayment deferral since the summer of 2024. Markets are worried that delinquency rates could rise even faster once repayments restart.
The Federal Reserve Bank of New York warned that student loan distress could spread beyond individuals and affect the broader credit market. Researchers said, "Financial hardship caused by default can also affect the credit of family members," adding that "the impact could become even greater if government debt collection resumes in the future."
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pride@fnnews.com Reporter Lee Byung-chul Reporter