End of Student Loan ‘On-Ramp’ Poses New Challenges for Borrowers and Financial Institutions

For the first time since 2020, student loan borrowers will soon see missed payments and delinquencies reflected in their credit bureau scores, marking the end of a 12-month “on ramp” period.

The return to student loan credit reporting could have significant implications for the broader financial system and consumer borrowing. A recent Government Accountability Office estimates that more than 10 million borrowers – over a quarter of the total – were delinquent as of the beginning of this year, with two-thirds of those more than 90 days late. Such borrowers could expect to take a significant hit to their credit scores if they haven’t resumed payments.

There’s evidence that some borrowers may have lost ground during the on-ramp period. Transfers from the Department of Education to the U.S. Treasury, a measure of student loan payments, have steadily declined from $7 billion in monthly transfers in August 2023– roughly equivalent to pre-pandemic levels – to just $4.1 billion in August 2024. (Part of this decline also reflects the enrollment of borrowers in new repayment programs, such as the Biden administration’s SAVE plan, which has enrolled 8 million borrowers.)

But for consumers not enrolled in alternate payment program like SAVE, the threat of deleterious credit score impacts concern remains. Pre-pandemic, student loan delinquency and default rates were significantly higher than those for other types of debt, and these patterns are expected to resume once reporting restarts.

Broader Impacts for Lenders

Student loan delinquencies underscore the broader vulnerability of the financial system to consumer debt. While various repayment programs and temporary moratoriums have provided cushion to consumers, the core challenge of rising delinquencies poses a risk to both the stability of consumer credit markets and lenders’ willingness to lend to a significant subset of would-be borrowers.

A potential impending decline in credit scores could conflict with the Federal Reserve’s work to increase credit access by cutting interest rates. Lower credit scores make it more difficult to secure auto loans, open new credit cards, and access other forms of personal credit, potentially slowing consumer spending and weakening the Fed’s expansionary efforts.

“The conclusion of the student loan repayment ‘on-ramp’ presents a significant challenge for lenders and financial institutions,” said Auriemma Roundtables Director Edgardo Torres, who leads the Personal and Student Lending Collections Roundtable. “Financial institutions may face heightened risk exposure and tightening credit conditions as millions of borrowers risk delinquency and declining credit scores. This could lead to a more cautious lending environment.”

The expiration of the student loan moratorium is more than just a policy shift—it could act as a trigger for tightening credit conditions across the economy. For lenders, borrowers, and policymakers alike, this represents a critical inflection point, with significant consequences for financial stability and economic momentum in the months ahead.

The Value of Lender-to-Lender Insights

Lenders must prioritize proactive measures to navigate downstream impacts stemming from the resumption of student loan credit reporting. By leveraging peer benchmarking, lenders are better positioned to mitigate the risks posed by rising delinquencies. By benchmarking borrower repayment trends and portfolio performance, institutions can better understand the full scope of the current economic environment and identify patterns that may indicate broader risks. Benchmarking against industry peers can provide valuable insights into emerging trends and best practices for managing risk.

Auriemma Roundtables’ Personal and Student Lending Collections Roundtable focuses on collections effectiveness, loan modification strategies, and the economic drivers affecting performance, including consumer debt, and the regulatory environment. To learn more about joining this Roundtable contract Edgardo Torres or Charles Klimpel.