The reality of student loan debt is crashing back into the lives of millions, and it’s a mess that no one seems ready for. According to a New York Fed study, student loan delinquencies are setting off a chain reaction of damage to credit scores. The findings are eye-opening: a superprime borrower who becomes 90 days delinquent could see their credit score plummet by 171 points. That’s not just a minor dip. That’s a massive hit, something that can take years to recover from. The shockwaves of this won’t just affect students; anyone tied to these borrowers—whether it’s in mortgages, car loans, or credit cards—will feel it.
The real trouble began in 2020 when the federal government paused student loan payments. During that time, delinquencies didn’t count against borrowers’ credit scores. As a result, millions of student loan borrowers saw an artificial bump in their credit scores—74 points on average, rising from a median score of 501 to 575. But now, with payments restarting, those delinquencies are showing up again, and those once-bloated scores are collapsing back to reality. The sudden repricing of credit risk is hard to ignore. A borrower who once seemed like a good credit risk is now facing a world of financial pain. The question is, how many other asset markets are mispricing credit risk this badly?
This is more than just a problem for the borrowers—it’s a ticking time bomb for the economy. Over 9.7 million student loan borrowers are behind on payments now that the bills are rolling in again. As of the latest numbers from the Fed, nearly 15.6% of federal student loans are past due, adding up to a staggering $250 billion in delinquent debt. That’s a huge amount of risk just hanging out there. And for borrowers, it’s a nightmare. Amanda Goodall, who works with a company in this space, confirmed the damage: “Credit scores are dropping fast—80 to 185+ points in many cases.” This isn’t just an issue for people who are barely scraping by. Even those who once had solid credit are now on the verge of a financial collapse.
The timing couldn’t be worse. People are confused, angry, and in complete disbelief that the student loan payments are coming back. Many are asking, “I haven’t been in school in years—why is this back?” And a lot of them are flat-out refusing to pay. “I’m not paying it,” they say. This isn’t just about individuals refusing to honor their obligations—it’s a broader failure in the system. The government encouraged forbearance for years, only to throw people back into the grinder once they were expected to resume payments.
But here’s the real kicker: Over 9 million Americans aren’t making their student loan payments, and that’s just the beginning. There are also 7 million people who have missed mortgage payments—an issue that will continue to play out across the housing market. This kind of systemic delinquency is going to shake the financial foundation of the country. Can you see it now? The next financial crisis might not come from the housing market or the stock market—it could come from the debt crisis that’s brewing under the surface.
Sources:
https://x.com/thejobchick/status/1904934968863973766
https://x.com/AnnaEconomist/status/1904949607689318586