It is the aftermath of the first resumption of student loan repayments in May, which were suspended during the coronavirus pandemic. Experts fear the outbreak will again throw cold water on the U.S. domestic economy, which has been mired in a prolonged slump.
The Wall Street Journal (WSJ) reported on the 24th, citing data from credit rating agency TransUnion, that about 6 million federal student loan borrowers were in arrears for more than 90 days as student loan repayments, which the U.S. government had suspended during the pandemic, resumed in May. If you default on your debt for more than 90 days, tax refunds and federal benefits may be limited, and up to 15% of your salary may be forcibly deducted.
TransUnion expects 2 million of them to be converted into default starting in July immediately, putting them at risk of foreclosure of up to 15% of their wages. This is far above TransUnion’s estimate of 1.2 million in early May. In addition, 1 million people are expected to fall into default in September and 2 million people in September.
The Biden administration gave student borrowers a 12-month grace period for repayment in 2023. Delinquency or non-payment did not adversely affect credit scores during this period. However, as the benefits ended last fall, the aftermath is now coming. According to TransUnion, only 9% of those whose student loans are overdue started paying off their debts normally by April.
Currently, about 43 million borrowers in the U.S. have more than $1.6 trillion in student loan debt.
This is expected to put a strain on the sluggish U.S. domestic market. In recent years, consumption among young Americans has declined sharply.
According to market research firm Circana, the consumption of U.S. consumers aged 18 to 24 fell 13 percent year-on-year in the January-April period. Accessories (-18 percent) fell the most, followed by IT products (-14 percent) and clothing (-11 percent). Despite the slowdown, the results contrast with the increase in consumption among older people.
Experts say that the background of this phenomenon is the deepening of employment difficulties and the resumption of student loan repayment. In fact, the credit card delinquency rate among 18-29 years old in the United States reached its highest since the pandemic. WSJ said, “Young consumers have been an important customer base in the retail industry due to their long-term loyalty and impulsive purchases, but the decline in their consumption power is raising concerns across the industry.”
SAM KIM
US ASIA JOURNAL
