For months, experts have warned that student loan borrowers who are behind on their payments may trigger a “default cliff.” Recent reports show that cliff is now looming.
The resumption of federal student loan delinquency reporting on consumers’ credit earlier this year caused a spike in the rate of severe delinquencies, which now near a record high, according to September’s Credit Insights report from credit score developer FICO.
Roughly 5.3 million borrowers are in default and another 4.3 million borrowers are in “late-stage delinquency,” or between 181 and 270 days late on their payments, according to a separate analysis last month by the Congressional Research Service based on data from the Education Department. Payments 270 days past due are considered in default.
With so many borrowers already seriously delinquent, “if these borrowers do not start paying soon, defaults will meaningfully rise,” Moody’s Analytics economist Justin Begley told CNBC.
According to Begley’s projections, “we should expect many borrowers to be pushed into default in coming months.”
