Student Loan Borrowers Face ‘Reckoning’ With 29% Delinquent

New TransUnion data shows almost 30% of student loan borrowers behind on their payments.

Millions of these delinquent borrowers are now preparing for involuntary collections from the U.S. Department of Education in the form of wage garnishment or the withholding of tax refunds or Social Security benefits, the credit reporting agency said Thursday (Sept. 25).

When student loan payments were on hold, many borrowers took on more credit, said Joshua Turnbull, senior vice president and head of consumer lending at TransUnion, and are now facing a “financial reckoning” as repayments resume.

“Combined with the broader impact of elevated inflation and a higher cost of living, the threat of involuntary collections is causing a potential shake-up amidst the traditional payment hierarchy,” he said. “Many are being forced to make difficult, short-term prioritization decisions as cash flows fail to meet spending and debt obligations.”

The same TransUnion survey found that nearly half of all federal student loan borrowers who are at least six months behind on their payments were not making those payments out of affordability concerns. Another third said they were being forced to prioritize other bills.

“These challenging decisions are likely to persist for at least the short term, as the percentage of federal student loan borrowers reported as seriously delinquent has remained stubbornly high in recent months,” the company said.

The findings follow a report from the Federal Reserve Bank of New York last month that student loan balances, combined with mortgages, were the main contributors to rising household debt.

In the second quarter, student loan balances rose for the fourth straight three-month period to reach $1.6 trillion, a $7 billion increase from the first quarter. The central bank found that student loans were also the main driver of delinquency rates. During the second quarter, 10.2% of student loan balances were seriously delinquent, a 31% increase from the prior quarter.

Meanwhile, research by PYMNTS Intelligence shows that among the 71% of Americans living paycheck to paycheck — around 186 million people — almost 20% of that group says education expenses are part of why their budgets are tight.

“Within this group, opinion is split on education’s payoff: 52% say their degrees lifted earning power enough to justify the cost, while 48% say earnings fell short of expectations,” PYMNTS wrote last month.

“Regret sits alongside resolve: 37% regret their financial choices about education, yet 63% would make the same decisions again despite the hit to their finances.”