They’re seeing their credit scores drop, which will make it more difficult to buy a car or rent a home. And that has implications for the already slowing economy.
After a five-year pause on penalizing borrowers for not making student loan payments, the federal government dropped the hammer. It instructed its loan servicers to start reporting late payers to credit bureaus at the start of the year.
The result: Millions of borrowers saw their credit scores plunge in recent months, and loan servicers are warning that a record number of borrowers are at risk of defaulting by the end of the year.
Only one-third of the 38 million Americans who have borrowed money to pay for college or graduate school and should be making payments actually are, according to government data.
Loan servicers estimate that this year around four million people have been reported to credit bureaus for late payments, and researchers at the Federal Reserve Bank of New York project that number will climb past nine million by the end of June.
Those rising numbers have implications for the broader economy, which has already shown signs of slowing. Low credit scores can prevent people from renting or buying homes and push them into pricier, riskier loans for cars, emergency cash and other everyday needs.
“It’s not a problem we want to add to the pile,” Preston Cooper, an economist and senior fellow at American Enterprise Institute, a conservative think tank, said of the student loan delinquencies.