The pause on reporting delinquent federal student loans to credit rating bureaus has ended. Eleven million borrowers are impacted. This poses a downside risk to consumer spending, as more households will have to allocate funds to pay their student loans, and those who fail to restart payments will see their credit score decline.
We put together a chart book to get a better understanding of the magnitude of this headwind to consumer spending, and it is available here.
The bottom line is that there are not only headwinds to consumer spending from higher tariffs, higher oil prices, and a shrinking labor force but also from middle-income households having to spend more on servicing their debt and having more difficulties borrowing as credit scores decline.
Sources: TransUnion US Consumer Credit Database, Apollo Chief EconomistSources: FSA, Apollo Chief EconomistNote: Figures in row two are a subset of row one. Repayment: Includes loans that are in an active repayment status; Forbearance: Includes loans in which payments have been temporary suspended or reduced as a result of certain types of financial hardships. Approximately 180 days following the loan’s first 90+ DPD delinquency reporting, at 270 days past due, the borrower enters default status, where the borrower is subject to collection actions by the US Department of Education. Sources: FSA, Apollo Chief Economist
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