Uncontrolled Defaults Resurface as Student Loan Recovery Efforts Commence

In a significant shift, the world of student loan collections is predicted to become more stringent than in previous years. This tougher approach is largely due to the high number of delinquent borrowers, as the student loan delinquency rate is currently at an all-time high of 20.5%, according to TransUnion. This figure is more than double the delinquency rate for credit cards.

The pause on collecting defaulted student loan payments, which began in March 2020, has recently come to an end. As a result, loan servicers are now resuming their duties, including reporting delinquencies to credit bureaus and pursuing collection actions. During the pause, loan servicers were instructed not to report delinquencies to credit bureaus unless borrowers were 90 days or more past due on federal student loan accounts.

The Department of Education estimates that by this summer, nearly 10 million borrowers could be in default. This is a concerning increase from the current estimate of approximately 5 million student loan borrowers in default, as stated by the DoE.

Brian Riley, Director of Credit at Javelin Strategy & Research, predicts that these aggressive government collection actions on student loans will lead to significant declines in credit scores for more than 9 million student loan borrowers during the first half of 2025.

The organization responsible for the estimate of this widespread credit score deterioration is not specified in the provided search results. However, it is clear that many credit bureau reports will begin to reflect student debt and their delinquent statuses.

It's important to note that even borrowers who were current on their payments did not face any penalties during this time. However, the student loan liability may still diminish their ability to repay a new loan. Furthermore, more than 20% of all federal student loan borrowers with payments due are over 90 days delinquent, and an additional 4 million are in late-stage delinquency (91 to 180 days behind on payments).

These collection actions will involve third-party collection agencies and the right to reduce loans to judgment. As the student loan delinquency rate continues to rise, it's crucial for borrowers to seek out resources and assistance to manage their debt and maintain their credit scores.