Student loan collections resume as record number of borrowers fall behind on payments
Millions of student loan borrowers could face a wake-up call Monday as the Department of Education resumes collecting on school loans. The restart of collections comes as data from a recent analysis shows delinquency rates among people with student debt are at an all-time high.
After nearly five-years since the U.S. government first paused federal student loan payments and interest accrual as a temporary relief measure during the COVID-19 pandemic, May 5 marks the first day the Education Department's Office of Federal Student Aid (FSA) restarts collections on defaulted federal student loans.
Referrals for collection had been put on hold since March 2020 because of the pandemic. That grace period was extended multiple times by the Biden administration and ended in October.
"The level of concern here really depends on the reasons a borrower has not paid their federal student loans. If they don't have the capacity, they may be overstretched," Michele Raneri, vice president and head of research at TransUnion, said in a statement."They may not know they have to pay them, may not be able to find the information on how to do so, or may not have a willingness to pay for one reason or another," she said.
Still, one in five borrowers Iis "seriously delinquent" or has a past-due payment of 90 days or more, according to a new analysis by TransUnion, one of the three major credit bureaus. The analysis looks at the percentage of student loan borrowers at risk of default and the impact that has on their credit scores.
Those in default face an uphill battle: failing to pay means the government can withhold portions of Social Security benefits and tax refunds and garnish wages. Defaulting on a loan can also tank your credit score, which in turn can make it more difficult to obtain a loan in the future.
Read on for more information about the state of student loan borrowing as default collections resume.
Millions at risk of defaulting
The credit bureau's findings underscore how student loan repayments have struggled to get back on track since COVID-19. Payments on student loans were paused in March 2020 and didn't resume until October 2023.
For borrowers across the U.S. who didn't have to worry about making payments for years, the resumption of student loan payments presented a challenge for many individuals struggling financially.
Out of the 19.6 million student loan borrowers, TransUnion found that roughly 20% are at risk of defaulting. The figure — which TransUnion estimates could be much higher — outpaces the credit bureau's previously recorded all-time high of 15.4% in 2012.
For its analysis, TransUnion looked at those susceptible to being 90-days past due on their loans. That winnowed down the field of borrowers from approximately 42 million to a total of 19.6 million borrowers. Excluded from this report were people in deferment or forbearance, or private student loan borrowers, said TransUnion's Raneri.
As the federal student aid website outlines, if someone is delinquent on their loans for 90 days or more, a loan servicer can report your delinquency to the national credit bureaus. Credit bureaus have the power to knock off points on a person's credit score if they default on a payment, which can affect their ability to for future loans. who had a minimum payment that was due in the last three months.
On average, people who faced default lost an average of 63 points, TransUnion found, although those with higher credit scores were at risk if losing much more. Those in "super prime" credit territory — which defined in the analysis as a credit score of 781 or higher — saw an average credit score decline of 175 points as a result of impending student loan defaults.
"Borrowers can review their credit report to see what loan servicers are reporting," Ranieri told CBS MoneyWatch. "This can also help people find who to contact if they have a loan they didn't expect to see."
All told, the nation's nearly 43 million student loan borrowers hold a collective $1.6 trillion in debt, according to the Education Department. Agency data indicates that over 5 million of these borrowers have not made a monthly payment in over 360 days, while only 38% are on track with their repayment plans.
Secretary of Education: Long overdue
Student loan collections were upended during the COVID-19 pandemic. In March 2020, during President Trump's first term in office, the Education Department paused student loan payments and knocked interest rates to zero to give borrowers some breathing room.
When former President Biden took office in 2021, he extended the loan repayment deadline multiple times until Congress passed a law directing payments to resume in October 2023. The Biden administration made several attempts to deliver a student loan debt relief during his time in office, but his efforts were stymied by courts.
While student loan repayments resumed over a year and a half ago, Monday, May 5, is the first day since March 2020 the Department of Education is collecting repayments from borrowers who have struggled to meet their payment deadlines. For U.S. Secretary of Education Linda McMahon, the return is long overdue.
"American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies," said McMahon in an April statement. "The Biden Administration misled borrowers: The executive branch does not have the constitutional authority to wipe debt away, nor do the loan balances simply disappear. Hundreds of billions have already been transferred to taxpayers."
contributed to this report.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Yahoo
24 minutes ago
- Yahoo
My mother-in-law thought the world's richest man needed Apple gift cards. How on Earth could she fall for this scam?
We just found out that my 75-year-old mother-in-law is a victim of an online scammer. Her cognition is clearly impaired. She has several health problems. We are getting power of attorney and access to her bank accounts. She is definitely lonely. That, I believe, is the root cause. But that's not an excuse to believe that the world's richest man needs you to send him Apple AAPL gift cards. Her siblings are all shocked that she would believe this. How could this happen? Her only income is Social Security and a small pension. Her only asset is her home. It's paid off. My husband had a brief meeting with a lawyer who offered to transfer the deed to my husband to avoid the five-year look-back rule etc. (His mother agreed to it.) My mother-in-law currently gets a large senior tax break on her property taxes of $4,000 a year, which will go away if we transfer the deed. Should we put the house in a trust? What happens to the proceeds when sold? Israel-Iran clash delivers a fresh shock to investors. History suggests this is the move to make. 'I'm 68 and my 401(k) has dwindled to $82,000': My husband committed financial infidelity and has $50,000 in credit-card debt. What now? I'm in my 80s and have 2 kids. How do I choose between them to be my executor? Here's why stocks, bitcoin and gold are racing to record highs at the same time. It hasn't happened in over 10 years. Walmart's stock looks like it's in trouble. What the chart says may come next. Daughter-in-Law Related: I'm 57 and ready to retire next year on $7,500 a month, but my wife says no. Who's right? You have answered your first question. Loneliness and impaired cognition is a potent combination for scammers and fraudsters. Your mother-in-law wants to believe there's another person out there in the ether who takes an interest in her, and 'sees' her literally and figuratively, but her ability to process what is real and what is fake may also be impaired. The smartest people can fall victim to scams at a vulnerable moment and suspend their disbelief, as if watching a play, until it's too late. There have been cases recently where older people were scammed of six figures by thieves using AI and/or pretending to be famous people. In January, a French woman said she was conned out of €830,000 (approximately $868,000) by someone pretending to be the actor Brad Pitt. She received even more online abuse from people mocking her. She told reporters: 'I came forward because I am not the only one.' While your husband's power-of-attorney document will expire after your mother-in-law's death, estate plans often include what's called a 'durable' power of attorney. This permits the trusted individual (in this case, your husband) to retain power of attorney if and/or when your mother-in-law can no longer make decisions for herself. A conservatorship is an involuntary process and takes place when a person is unable to take care of their finances. Each state has its own rules for guardianships and conservatorships. To apply to be a conservator, your husband would need to file a petition with the probate court in the county where your mother-in-law lives and detail all the responsibilities, powers and duties he intends to take on for her. He would also need to submit a plan for her care. That does not, from what you say, appear to be required in this case. Your mother-in-law or her POA should also freeze her credit with all three major credit bureaus — Experian EXPGF, TransUnion TRU and Equifax EFX EFX — so no one can take out loans or open accounts in her name. People 60 and older are five times as likely as younger consumers to report losing money to tech-related scams, according to the Federal Trade Commission. Phone scams are the No. 1 scam affecting older people, followed by computer-related fraud. You should consult an attorney who specializes in elder law. A person's home is generally exempt as long as it is a principal residence and your equity doesn't exceed a certain amount. Other exemptions, depending on where you live, include one automobile as long as it's used to get to and from work, used to obtain medical treatment or is essential because you have a disability. Personal property used as investments — such as artwork — may not be exempt. The laws on property also vary, depending on where she lives. Several states, including Florida, New York and California, have rules that exempt a primary residence from assets calculated by Medicaid under certain circumstances. In many states, your mother-in-law or her spouse (if he were alive) would need to live in the home or have plans to return to it (if it's empty) if you wish the property to remain exempt from Medicaid. While one's primary home is generally not counted toward Medicaid's asset limit, it is not exempt from Medicaid's Estate Recovery Program, the American Council on Aging says. Your state Medicaid agency may attempt reimbursement of care costs through whatever estate of the deceased remains, and that includes the home. Furthermore, if your mother-in-law signs over her home to your husband, he will lose his step-up in-basis tax advantage. As you suggest, some people plan ahead by establishing an irrevocable trust before the five-year look-back rule. By transferring your assets into an irrevocable trust, you no longer own them and, therefore, they are exempt from Medicaid. 'They also protect assets for one's children and other relatives, which is a win-win for Medicaid applicants and their families,' says the American Council on Aging. A Medicaid Asset Protection Trust (or irrevocable income-only trust) can protect the assets of a person who wishes to apply for Medicaid, as long as this is done before the look-back period. You can include stocks and bonds, bank accounts and CDs, and secondary properties. With a MAPT, you are giving up control of these assets. Medicaid can challenge the trust, and the challenge can be complex and expensive. It will be an easier path ahead if your mother-in-law is open to help. Related: My wife asked for a divorce after 21 years. She wants to buy a house with our savings, but promises to help pay my mortgage. Previous columns by Quentin Fottrell: My husband will inherit $180K. I think we should invest the money. He wants to pay off his $168K mortgage. Who's right? 'I'm at a loss': My boyfriend of nearly 10 years is naming his elderly parents as beneficiaries and giving them power of attorney. Am I right to be upset? 'We have no prenuptial agreement': Will my wife be able to take my money if I transfer it to my retirement account? . My friend, 83, wants to add me to his bank account to pay his bills. What could go wrong? 'It might be another Apple or Microsoft': My wife invested $100K in one stock and it exploded 1,500%. Do we sell? My life partner is 18 years my senior. He wants to leave his $4.5 million fortune to me — not his two kids. Do we tell them? 'I prepaid our mom's rent for a year': My sister is a millionaire and never helps our mother. How do I cut her out of her will? 'I am getting very frustrated': My mother's adviser has not returned my calls. He manages $1 million. Is this normal?
Yahoo
33 minutes ago
- Yahoo
AO World profits set to jump amid growth strategy progress
Online white goods retailer AO world is set to reveal a jump in profits after its growth strategy helped drive stronger sales. The company has been undergoing a steady recover over the past three years after losses soared in 2022 in the aftermath of the Covid pandemic. It is on track to deliver another improved performance when the online retail group reports its annual results on Wednesday June 18. The group is expected to reveal a roughly 30% increase in underlying pre-tax profits, which could increase to as much as £44 million for the year to March. Meanwhile, the company is also set to report that like-for-like sales grew by about 7% for the year. Analysts at Peel Hunt are predicting it will hit sales of £1.11 billion for the year. In its previous update in March, AO said the consumer demand was remaining 'robust' despite many households facing higher mortgage payments and energy bills. Shareholders will be keen to see the group's outlook for the new financial year, as it also books higher costs following increases in the minimum wage and national insurance contributions. AO previously said it expected April cost increases to leave the company with about £8 million in extra costs. Analysts are, however, pointing towards continued profit growth despite the cost rise, with the group's growing membership operation an area which would help accelerate its sales. Peel Hunt's John Stevenson said: 'AO's membership scheme is the glue that binds the group's widening capabilities across finance, mobile and pre-owned, and introduces MDA (major domestic appliance) customers to the full range of AO's non-MDA products. 'Get membership right and we believe AO can double its electricals market share, delivering 2.5 times current revenue and five times profit over 10 years, with sliding scale in between. 'The early developments of membership are showing good traction.' Investors will also be keen to see AO's strategy for the Music Magpie business it bought last year for about £10 million. AO World founder and chief executive, John Roberts, said adding the 'top-tier trade-in service' was 'essential' for the group. Michael Hewson, analyst at MCH Market Insights, said: 'The acquisition of Music Magpie is expected to add £30 million of revenue, adding a modest loss into the full-year results. 'There should be greater clarity on how much this is likely to be with the risk of a potential impairment of up to £22 million.'
Atlantic
40 minutes ago
- Atlantic
Aging in America Is About to Get Worse
At the core of every joke about Baby Boomers lies a seed of jealousy. Unlike younger generations, they have largely been able to walk a straightforward path toward prosperity, security, and power. They were born in an era of unprecedented economic growth and stability. College was affordable, and they graduated in a thriving job market. They were the first generation to reap the full benefits of a golden age of medical innovations: birth control, robotic surgery, the mapping of the human genome, effective cancer treatments, Ozempic. But recent policy changes are poised to make life significantly harder for Baby Boomers. 'If you're in your 60s or 70s, what the Trump administration has done means more insecurity for your assets in your 401(k), more insecurity about sources of long-term care, and, for the first time, insecurity about your Social Security benefits,' Teresa Ghilarducci, a labor economist at the New School, told me. 'It's a triple threat.' After more than half a century of aging into political and economic trends that worked to their benefit, the generation has become particularly vulnerable at exactly the wrong moment in history. Perhaps the biggest threat to Boomers in the second Trump administration is an overhaul of Social Security, which provides benefits to nearly nine out of 10 Americans ages 65 and older. In an emailed statement, Social Security Commissioner Frank Bisignano wrote, 'I am fully committed to upholding President Trump's promise to protect and strengthen Social Security. Beneficiaries can be confident that their benefits are secure.' But in February, DOGE announced plans to cut Social Security staff by about 12 percent and close six of its 10 regional offices; a quarter of the agency's IT staff has quit or been fired. Social Security's long-term outlook was already troubled before Trump, and these drastic reductions make the understaffed agency even less equipped to support those who rely on it. Shutting down field offices means seniors can't get help in person; less staffing means longer wait times when they call and more frequent website crashes. 'When you add hurdles, or cause a slowdown in terms of processing claims, you see losses in terms of benefits,' Monique Morrissey, a senior economist at the Economic Policy Institute, told me. In fact, shutdowns of field offices during the first two years of the coronavirus pandemic corresponded with decreased enrollment in both Social Security and Social Security Disability Insurance, which is available to Americans under 65 who can no longer work for physical or mental reasons. Social Security cuts will most hurt low-income Boomers, who are the likeliest to rely on benefits to cover their whole cost of living. But even those with more financial assets may depend on Social Security as a safety net. 'It's important to understand that many seniors, even upper-income seniors, are just one shock away from falling into poverty,' says Nancy J. Altman, the president of Social Security Works, an organization that advocates for expanding the program. As a whole, seniors have more medical needs and less income than the general population, so they're much more financially vulnerable. If you're comfortably middle-class in your early 60s, at the height of your earning potential, that's no guarantee that you'll remain comfortably middle-class into your 70s. In the next few years, Boomers who face more medical bills as they stop working might find, for the first time in their life, that they can't easily afford them. Middle-income seniors are also likely to feel the impact of a volatile market. 'They tend to have modest investments and fixed incomes rather than equities, so the type of wealth that will erode over a high-inflation period,' Laura D. Quinby, who studies benefits and labor markets at the Center for Retirement Research at Boston College, told me. After Trump announced 10 percent tariffs on all imported goods in April, the three major stock indexes dropped 4 percent or more. They've since recovered, but the erratic market—whipped around by Trump's shifting proclamations about tariffs—scares many middle-class Boomers, who are watching their retirement savings shrink. In the near future, older Americans might find themselves paying more for medical care too. Trump's 'big, beautiful bill,' which has passed in the House but awaits a vote in the Senate, would substantially limit Medicare access for many documented immigrants, including seniors who have paid taxes in the United States for years. The bill would also reduce Medicaid enrollment by about 10.3 million people. Although Medicaid is for people with limited incomes of all ages, it supports many older Americans and pays for more than half of long-term care in the U.S. Most seniors require some sort of nursing home or at-home medical care; one study found that 70 percent of adults who live to 65 will require long-term services and support. That support may soon be not only more expensive, but harder to come by. The long-term-care workforce is disproportionately made up of immigrants, so the Trump administration's immigration crackdown is likely to reduce the number of people available to take care of seniors—and increase how much it costs to hire them. 'If you have no money, you'll be on Medicaid in a nursing home, and that's that. But if you're trying to avoid that fate, you're now going to run through your money more quickly and be more vulnerable,' Morrissey said. Seniors with some financial security are more likely to live long enough to contend with the diseases of old age, such as Alzheimer's and dementia. The Trump administration has cut funding for promising research on these diseases. 'Going forward, you'll find less treatments reaching fruition,' Thomas Grabowski, who directs the Memory and Brain Wellness Center at the University of Washington, told me. For now, the UW Memory and Brain Wellness Center, where Grabowski works on therapies for Alzheimer's, has stopped bringing in new participants; as time goes on, he said, they'll have to tighten more. (Kush Desai, a White House spokesperson, told me in an email that the cuts to research funded by the National Institutes of Health are 'better positioning' the agency 'to deliver on medical breakthroughs that actually improve Americans' health and wellbeing.') Changes at the UW Memory and Brain Wellness Center could have dramatic effects on current patients, including Bob Pringle, a 76-year-old who lives in Woodinville, Washington. In April, he started getting infusions of donanemab, an anti-amyloid medication approved by the FDA last year. The drug doesn't cure Alzheimer's; it's designed to slow the disease's progression, though the utility of donanemab and other Alzheimer's drugs remains controversial among experts. Pringle, for one, has found donanemab helpful. 'With the medication, my decline is a gentle slope, rather than a rapid decline,' says Pringle, whose mother died of Alzheimer's and whose sister lives in a memory-care facility. 'You're always hopeful that somebody with a bigger brain than you have is working on a cure, and the medication gives us some time until then,' Bob's wife and caretaker, Tina Pringle, told me. 'But right now, because of the funding cuts, our outlook is grim.' The unknowability of the future has always been a scary part of getting older. The enormous upheaval that the Trump administration has created will only magnify that uncertainty for Boomers. After a historical arc of good fortune, their golden generation has to contend with bad timing. Younger generations, including my own, shouldn't gloat, though: Cuts to Social Security and a halt to medical research could well worsen the experience of aging for generations to come. Younger Americans will likely grow old under challenging conditions too. Unlike the Boomers, we'll have plenty of time to get used to the idea.
