After years of pandemic-era forbearance, the U.S. student loan crisis is rapidly deteriorating. In this clip from The Call @ Hedgeye, Macro analyst Josh Steiner breaks down the troubling data and warns of what’s ahead.
“When we went into the pandemic, there was this very widespread forbearance implementation where borrowers didn't need to make payments,” Steiner explains.
While official repayments resumed in late 2023, an additional grace period allowed borrowers to delay further—until now.
According to TransUnion, the percentage of borrowers more than 90 days past due has jumped to 13%, up from 8.5% in early 2020. Making matters worse, oversight of student loans is shifting from the Department of Education to the Small Business Administration (SBA)—which is simultaneously cutting its workforce by 43%.
Steiner says financial strain will intensify through Q2 and Q3 of 2025, as millions of borrowers face “significant payment shock dynamics.” The broader implications for credit markets and consumer spending could be substantial.
The student loan situation across the U.S. is sort of getting worse in a hurry in terms of
credit quality. The basic dynamic there is that, you know, of course when we went into the pandemic
there was this, you know, very widespread forbearance implementation where, you know,
borrowers didn't need to make payments. That lasted really for years. It finally expired
in late 2023, but didn't really expire because there was, even at the end of that, a 12-month
sort of furtherance of, you know, borrowers' ability to kick the can. So, you know, it was
sort of like, you know, start repaying in late 23, but if you don't want to start repaying
for another year, that's okay too and it won't hurt your credit score. So, unsurprisingly,
lots of people availed themselves of that option. Fast forward to late 2024, that 12-month
incremental grace period expired and now, you know, we're getting to the point where
we're starting to see, you know, essentially the fallout from that. So, TransUnion is out with
data basically indicating that student loan delinquencies that are considered significant,
these are loans that are more than 90 days past due, have risen to 13% of borrowers,
up from 8.5% in early 2020. And it comes at a time that's pretty interesting because
with the winding down of the Department of Education, remember that one of the main
jobs that the Department of Education had was the administration of the student loan program,
that responsibility is being transferred to the SBA, the Small Business Administration,
but it's being done at the same time that the SBA is reducing its headcount by 43%.
And so, there's a dynamic there where, you know, there's just a tremendous amount of
flux and change and you've got, you know, a lot of borrowers who are either already engaged with
or trying to sort of stay current in their income-based repayment plans which require
annual income recertification dynamics and so forth. So, long story short, there is a lot of
turbulence happening under the surface in terms of student loan borrower credit dynamics. You
know, we're talking about something like, you know, 10 million people who in the last, you know,
three to six months have, you know, either been supposed to restart their payments or trying to
restart their payments, you know, and in some cases seeing very significant payment shock
dynamics and so forth. So, anyway, I just wanted to kind of put that back on the radar because,
you know, it kind of comes on, goes off, but clearly it's having a significant impact here
and I would expect that impact would only grow over the course of the second quarter
and the third quarter as we kind of get into the full effect of that payment shock dynamic.
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