A new report from the Federal Reserve Bank of New York estimates that about 9 million Americans with student loan debt are at risk of seeing their credit scores fall due to being late on their payments. Yahoo Finance Personal Finance Reporter Jordan Weissmann reports the details.
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According to Pew Research, the US has nearly 40 million student loan borrowers, and many have been wondering about the future of their loans after President Trump declared his intention to shutter the Department of Education. A new survey from the New York Fed suggests nine million of those borrowers could see their credit scores decline as a result of delinquent loans. Yahoo Finance's own Jordan Weisman has the details. Hey, Jordan.
Hey, so, uh, thanks for having me.
Absolutely. So let's dive into this. What is the potential net impact that we could see here and now the move that we're seeing from the Trump administration?
Right. So about the nine million potential delinquent borrowers, um, uh, for the last year, uh, student borrowers have been repaying their loans after the COVID, the pandemic pause was lifted. Um, however, uh, if people were late on their payments, that was not being reported to credit bureaus, right? There was sort of this on-ramping period where you could miss a payment, but it wouldn't affect your FICO score. Uh, that's ending. Um, for the last several weeks, credit, uh, the student loan servicers have been reporting late payments to credit bureaus. So finally, if you are not up to date on your loans, it's going to impact your ability to borrow. Um, and the New York Fed thinks, they did some number crunching. These aren't the official data, but, uh, kind of the preliminary numbers suggest there are nine million people who could be affected by this, who are already behind. That's actually a higher percentage of borrowers than before the pandemic. So people are having a harder time paying back their loans now than they were, say, in 2019. Um, as far as the effect of the closure of the department or potential closure of the Department of Education, I should say, um, you know, there's just a lot of confusion right now around the student loan program. People aren't sure what's going on. Um, they only just, uh, or today are supposed to be restarting applications for some of the income-based repayment programs that have been paused. So, you know, confusion doesn't help. Uh, you know, people having are having trouble paying back their loans. Everything being a little bit of chaos is probably going to make that worse.
And so another update for student loans, the Department of Education planning to bring back income-driven repayment plans. What are you hearing on that front?
Right. So yesterday, so, um, since February, essentially, um, the Department of Education has been blocking off access to income driven repayment plans, which cap how much you owe each month, uh, as a percentage of your income. Um, um, they did that in response to a court decision, uh, but people have sort of been wondering, okay, when are you going to bring them back? When are you going to fix the applications and let people apply for the stuff that's not affected by the litigation? It looks like, um, they are going to, there's, they, some lawyers for the government in a lawsuit yesterday suggested that applications would restart today. Um, so things should sort of maybe be going back to normal. Um, I was also told by some sources on background yesterday that looks like things are heading in that direction. So at least one part of the student loan program should sort of kind of maybe be going back to normal soon.
