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CONTRIBUTORS

Tracy Chen, CFA, CAIA

Brandywine Global

While markets are preoccupied with the tariff war and trajectory of Federal Reserve policy, there is another potential headwind to growth that may be quietly building. After the three-year pause on federal student loan interest and payments ended, a federal student loan “on-ramp” period was introduced from October 1, 2023, to September 30, 2024. During this 12-month safety-net program, loan interest resumed, but student loan borrowers were temporarily protected from negative consequences of late or missed payments, including being reported to credit bureaus or debt collection agencies, or placed in delinquency or default. The on-ramp period has ended, creating financial pressure for borrowers with potential implications for the broader consumer debt market.

As of the first quarter of 2025, 10.1 million student loan borrowers are in forbearance, according to Bank of America Research.1 During forbearance, borrowers are not required to make payments. However, as they transition out of forbearance into repayment, we expect to see higher delinquencies and defaults. Currently, 5.95 million borrowers are delinquent by 90 to 180 days, says Bank of America Research. The total federal student loan portfolio grew to US$1.66 trillion with 45.2 million borrowers as of the end of the second quarter. High delinquency rates, which are currently at 27% of all loans and 11% of loans in repayment status, indicate a rising risk of defaults. A significant number of borrowers owe under US$20,000, but most of the debt is concentrated among those owing over US$100,000.2

Exhibit 1: US Federally Managed Portfolio 91-180 Days Delinquent by Status

% of Dollars Outstanding. As of April 30, 2025

Source: Federal Student Aid.

Some research suggests that student loan delinquencies could surpass pre-pandemic levels. And the heightened risk of recession could exacerbate the financial pressures on these borrowers. As missed payments begin appearing on credit reports, a significant number of borrowers could see substantive declines in credit scores. We will be closely monitoring student loan delinquency trends given that the impact will be felt on other consumer credit and consumer spending.

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