With student-loan repayments resuming this fall, approximately one in five borrowers have some financial risk factor that may make them fall behind on payments, according to new research from the Consumer Financial Protection Bureau (CFPB).
Americans owe $1.77 trillion in federal and private student loan debt as of the first quarter of 2023.
Nearly 20 percent of borrowers, about 5.9 million, have two or more risk factors that indicate they will struggle with making their student loan payments according to the June 7 CFPB report. That’s up from the estimated 5.1 million borrowers who were at risk in April 2022.
Further, more than one in 13 student-loan borrowers are behind on some other repayment obligations, an increase from before the pandemic.
As of March, around 2.5 million people with student debt were delinquent on another one of their loans or payments, the report found. That’s 200,000 more borrowers with a delinquency, compared with last September.
The rising delinquencies mean that more borrowers will be at risk of defaulting when payments resume after a three-year pause.
“These borrowers might be unable to make payments on their student loans if they are already missing payments on their credit cards or auto loans, which research suggests people often prioritize over their student loans,” Kentia Elbaum, a spokesperson for the CFPB, told CNBC.
The CFPB has tracked the credit health of student borrowers during the pandemic. The bureau’s data are based on a sample that represents about 32 million federal student-loan borrowers.
Its latest update comes as borrowers await a ruling from the U.S. Supreme Court on whether the Biden administration can carry out its one-time debt-relief plan. The court is expected to release its decision by late June or early July.
Under the proposal, individual borrowers who made less than $125,000 in either 2020 or 2021 and married couples or heads of households who made less than $250,000 a year could see up to $10,000 of their federal student-loan debt forgiven.
If a qualifying borrower also received a federal Pell grant while enrolled in college, the individual is eligible for up to $20,000 of debt forgiveness.
Originally, the pause on federal student-loan payments was put in place to help borrowers struggling financially due to the pandemic.
However, the bipartisan debt-ceiling deal signed into law by President Joe Biden earlier this month includes a provision that prevents the Biden administration from extending the pause on federal student-loan repayments. The repayment date has been extended a total of eight times under both the Biden and Trump administrations.
“Student-loan interest will resume starting on Sept. 1, 2023, and payments will be due starting in October. We will notify borrowers well before payments restart,” the Department of Education said in a statement sent to CNN on June 12.
The Department of Education has said that it will be in direct communication with borrowers and ramp up its communication with student loan servicers before repayment resumes.
Student-loan experts recommend that borrowers reach out to their student-loan servicer with any questions about their loans as soon as possible, especially if they are interested in enrolling in an income-driven repayment plan. Those plans, which set payments based on income and family size, can lower monthly payments but require borrowers to submit some paperwork.
