【By Observer News, Wang Kaiwen】 With the expiration of the relief measures implemented by the Biden administration during the pandemic, the delinquency rate of student loans in the United States has risen sharply.

According to a report by the UK's Financial Times on December 14, more than 9 million American student loan borrowers have missed at least one payment this year, and the proportion of overdue balances has doubled compared to during the pandemic.

Earlier this week, the U.S. Financial Stability Oversight Council (FSOC) stated that among all types of loans held by American households, student loans are "a significant exception," as their default rate has not remained low like other loans.

FSOC said that the default rate of student loans has historically been higher than other forms of consumer credit, and the proportion of loans over 30 days past due has doubled since the start of the repayment relief period in early 2020.

As the default rate rises, there is widespread concern that recent graduates are finding it difficult to find jobs amid the cooling of the U.S. labor market.

"They just don't have the money," said Charlie Wise, Senior Vice President and Global Head of Research and Consulting at credit bureau TransUnion, "which reflects some weakness we've seen in the graduate employment market."

This summer, TransUnion surveyed 196 borrowers who failed to make timely payments, and nearly half of the respondents said they couldn't afford to repay, while a quarter said they were waiting for information about loan forgiveness.

Credit bureau data shows that the median monthly repayment for student loans is around $200.

On May 19, 2025, in New Haven, Connecticut, USA, graduates gathered at Yale University's graduation ceremony. IC Photo

FSOC did not specify the scale of the defaulted balances, but data released by the New York Federal Reserve last month showed that 9.6% of the $1.65 trillion in U.S. student loans were more than 90 days overdue. This proportion decreased slightly from the second quarter, but rose significantly compared to 0.5% a year ago.

In the early stages of the pandemic, to ease household financial pressure and avoid credit damage, the Biden administration introduced a special policy, which allowed student loans to be deferred for three and a half years starting in March 2020. Although repayments resumed in October 2023, late payments were not recorded as defaults until September 2024.

Some people attribute the initial rise in default rates to borrowers not realizing that the repayment deferral had ended, but data from the New York Fed and credit bureau Equifax indicate that default rates remained high during the third quarter of this year.

FSOC said, "Over 9 million student loan borrowers have become delinquent since the resumption of credit reporting." The agency also added that delinquent loans "cause a significant drop in credit scores."

The Financial Times pointed out that a drop in credit scores significantly increases the difficulty of obtaining large financing, such as car loans and mortgage loans.

FSOC cited data from credit rating company VantageScore showing that borrowers who experienced student loan delinquency saw an average credit score drop of 100 points, from above 600 - "near-prime" level - to below 550, entering the "subprime" category.

Although about one-third of the 9 million borrowers have now returned to normal repayment, FSOC's annual report states that the negative credit impact may persist long-term, increasing the cost for borrowers on other credit products and limiting their ability to obtain new loans.

In a May article, the New York Fed noted that the average credit score of borrowers previously considered prime or super-prime with scores above 720 fell by 177 points. Among those who recently defaulted, 56.6% had scores below 620, with an average drop of 74 points.

Diane Swonk, Chief Economist at KPMG in the U.S., said, "This means a considerable number of people are being excluded from the credit market at a time when the overall credit environment remains relatively loose. This hinders their ability to move up the wealth accumulation ladder through home buying, which is already challenging."

From Wise's perspective, the implementation of the repayment deferral was "very necessary," but there was also a problem of "reluctance to restart the repayment mechanism." "They kept postponing (the deferral), again and again," Wise said.

Swonk believes that the stimulus measures during the pandemic were too strong, although there was a reason for them at the time, but these policies have created a "reverberation effect," with student loan delinquency being one of them.

"Sometimes, I wonder if capitalism is really the best system. If 9 million graduates didn't repay their student loans on time, there must be something wrong, right?" wrote a foreign netizen in the comments section of the report.

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Original: toutiao.com/article/7583652462272266795/

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