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1 in 4 Student Loan Borrowers Now Delinquent — Credit Scores Plunge And Spending Power Shrinks

• Student loan delinquencies caused credit scores to drop 100+ points for over 2.2 million borrowers, locking many out of affordable loans just as the cost of living climbs. 

• The surge in delinquencies signals deeper U.S. consumer stress - threatening household spending, credit access, and broader economic momentum.

What you need to know: New data from the New York Fed shows that nearly 1 in 4 student loan borrowers with payments due are now behind - up sharply from less than 1% during the pandemic pause, as millions struggle to get back on track¹. 

Why it matters: The surge in student loan delinquencies is alarming, with over 2.2 million borrowers experiencing credit score drops of 100+ points – and more than 1 million falling by 150+. This delinquency wave hits middle-credit borrowers the hardest as those who previously qualified for loans, such as mortgages, auto loans, or credit cards - may now face tighter access to credit and higher borrowing costs. Meanwhile, the Department of Education has resumed collections through wage garnishments and tax refund seizures, intensifying financial strain on households and raising concerns about broader stress across consumer credit markets as consumer incomes come under pressure. 

Now the Deep Dive: Wow - that latest New York Fed data on student loans is troubling.

To give some context of how bad the trend is: in Q1 2024, just 0.8% of borrowers were transitioning into serious delinquency (aka 90+ days late).

Now? That figure has surged to 8.04% - marking a nine-fold increase. Worse is that nearly 1 in 4 student loan borrowers with payments due fell behind in early 2025.

• This "conditional delinquency rate" leaves out those in deferment, forbearance, or on $0 payment plans – thus it focuses only on borrowers who were expected to pay.

This number is important because it gives us a clearer picture of the stress among those actually facing repayment.

And while this is a consumer-level problem, the ripple effects are broader.

Every dollar diverted to paying student loans - or worse, garnished from wages - cuts directly into consumer spending, which powers nearly 70% of U.S. GDP.

Meanwhile, there’s the credit squeeze to consider.

As I wrote about in last September’s piece, “Student Loan Delinquencies in 2025: Will Credit Scores Take a Massive Hit?”, rising delinquencies lead to falling credit scores – thus making borrowing harder and more expensive.

But now? It’s worse than I expected and happening on a huge scale.

For example – per the data - more than half of newly delinquent borrowers already had subprime credit scores (below 620) - so their access to credit was already relatively limited.

But roughly 2.4 million borrowers who fell behind on student loans had credit scores above 620 - meaning many could have qualified for mortgages, auto loans, or credit cards just months ago. Now, that access is evaporating - or coming at a much steeper cost via higher interest rates.

• Imagine waking up to see your credit score plunged over 100-150+ points. That would be quite the shock.

Remember, credit is demand. It's buying power as it allows someone to purchase something now and repay it later. Thus, less credit = less buying power = less growth.

 And adding salt to the wound - the average age of delinquent borrowers has now climbed above 40, proving this isn’t just a young-borrower issue. Many are in their prime earning and borrowing years (30-40S) yet still struggling.

Now, yes - some might argue this is just a return to the pre-pandemic level, where student loan delinquency rates hovered around 8–10% - which is true.

But today’s consumer is also grappling with rising delinquencies in credit cards and auto loans, which are now well above pre-pandemic levels (see chart below).

And that’s the real problem - the magnitude of all this consumer debt outstanding.

It’s like death by a thousand paper cuts. One won’t hurt much - but together, they can bleed you dry.

Put simply, this isn’t just a student loan story anymore - it’s a warning that the paper cuts continue piling up.

Something to keep in mind.

Figure 1: Business Insider, May 2025

Are Tariffs Contagious? Canada’s Crackdown on Chinese Steel

• Canada joins a growing list of countries pushing back against China’s export glut, as rising steel imports and U.S. tariffs squeeze domestic producers.

• ArcelorMittal’s plant closure and layoffs in Ontario mark the latest sign that China’s overcapacity is triggering real job losses abroad.

What you need to know: Canada is preparing to roll out new measures to curb foreign steel dumping - just months after slapping 25% tariffs on Chinese steel and aluminum. Industry Minister Mélanie Joly says stronger protections are coming as domestic producers face pressure from cheap imports and rising U.S. trade barriers². 

Why it matters: Canadian steelmakers are being squeezed from both sides - facing rising foreign imports and worsening export conditions due to U.S. tariffs. Plant closures and layoffs are already underway. Ottawa’s response aims to protect jobs and reinforce alignment with U.S. industrial strategy as trade frictions intensify. 

Now the Deep Dive: I found this news very interesting because while global headlines tend to focus on U.S. tariffs, the reality is that a global backlash against Chinese trade tactics is gaining traction.

Canada now joins a growing list - including the EU, Brazil, Turkey, Vietnam, and more – that are imposing tariffs in response to China's alleged “dumping” of goods into global markets.

• In short, this stems from China’s industrial overcapacity. As I’ve written to you before in last year’s “China’s Manufacturing Glut: How Overproduction & Trade Tensions Could Spark a Global Crisis” - when domestic demand is weak and can’t absorb production, Chinese firms instead offload the excess onto global markets at cut-rate prices = undercutting foreign competitors and causing economic strain in importing countries.

Once you factor this in, Canada’s steel sector is a clear casualty of this imbalance.

And to give you some context on China’s steel glut:

• Exports jumped 8.2% from last year — the biggest surge since 2015, when China devalued its currency to flood global markets with exports³.
  
  
• Imports dropped 14.1% - which is synonymous with saying that demand from China dried up for countries relying on selling steel into its market.
  
  
• Put simply, that’s a 22% swing that suggests China isn’t just exporting excess steel, but also shutting the door on foreign competitors

Thus, more steel coming in (from China) + less steel going out (because of U.S. tariffs) = fewer Canadian jobs.

• Among the hardest hit is ArcelorMittal, one of Canada’s top producers, which just announced the permanent closure of its Hamilton, Ontario site - laying off 153 workers due to rising imports and economic pressure.

And the last thing local politicians want? A laid-off steel workforce demanding answers.

But again - this goes beyond Canada. It’s part of a broader, quietly escalating trade war. Only this time, the focus isn’t on the U.S. It’s on China.           

Stay tuned - this could be just the start. 

Figure 2: GMK Center, May 2025

From U.S. Tariffs to China’s Rise: Japan’s Auto Industry Feels the Squeeze

• The 25% U.S. tariff could cost Japan’s auto industry $19 billion this year - significantly threatening jobs, wages, and small suppliers.
  
  
• China’s EV surge may be Japan’s bigger threat, with BYD outselling Toyota and exports flooding global markets.

What you need to know: The 25% U.S. tariff on cars and auto parts is set to slam Japan’s auto industry, with top manufacturers bracing for a $19 billion blow this fiscal year alone⁴. 

Why it matters: This could be a devastating blow to Japan’s massive auto sector - hitting not just major manufacturers, but also small and mid-sized suppliers of automobiles that are already stretched. As layoffs loom and production moves abroad, the Bank of Japan is warning of ripple effects through wages and supply chains, while Tokyo tries to contain the fallout and avoid a broader economic slowdown. 

Now the Deep Dive: We all know the Japanese auto giants - Toyota, Nissan, Honda, Subaru.

But here’s what often gets overlooked. . .

• Nearly two-thirds of Japan’s entire workforce is employed by firms with fewer than 1,000 employees - and many of those firms are directly or indirectly tied to the auto industry.
  
  
• Automobiles and auto parts are Japan’s main export, thus significantly contributing to Japan’s trade surpluses for decades.

So – in other words - this isn’t just about the big brands. This is about the foundation of Japan’s economy – which is the world’s fourth-largest economy.

And yes, U.S. tariffs are a sharp thorn in Japan’s side. Losing access to a major export market like the U.S. could trigger real damage.

But here’s what the headlines are missing - the rise of the Chinese automobile sector and exports.

Here are some stats that should worry Japan’s auto-driven economy:

• Japanese automakers once held 23% of China’s auto market in 2020. That’s now collapsed to just2% as of early 2024⁵.
  
  
• China has overtaken Japan as the world’s top vehicle exporter - and it’s aggressively expanding into key Japanese markets like Europe and Southeast Asia.
  
  
• Even inside Japan, BYD’s EV sales surged 54% in 2024, outselling Toyota’s and grabbing 3% of the domestic market in record time⁶.

So while the U.S. tariffs make headlines - China’s rise may pose the bigger structural threat.

And look - I’m not always trying to single out China. But as I wrote in “China’s Fragile Truce with the U.S. - and Why Beijing Desperately Needs It”, the country is clearly trying to export its way out of a property bust. And Japan’s auto sector - and others around the world - are getting buried in the fallout.

Thus, if U.S. tariffs stick and China keeps flooding markets with EVs, Japanese automakers could get squeezed from both ends - risking a broader economic fallout.

This could be an existential threat to Japan’s already fragile economy. So don’t be surprised if Tokyo eventually fires back with tariffs of its own — escalating the global trade war.

So, I'll keep you in the loop as time goes on. 

 Figure 3: Bloomberg, June 2025 

Anyway, who knows what will happen?

This is just some food for thought as we watch how these trends develop.

As always, we’ll be keeping a close eye on things. Enjoy the rest of your weekend.

Sources:

1. Student Loan Delinquencies Are Back, and Credit Scores Take a Tumble  - Liberty Street Economics
2. Canada Eyes Further Moves to Counter Foreign Steel Dumping - Bloomberg
3. China increased steel exports by 13.4% y/y in April
4. Trump's Auto Tariffs Hit Toyota, Honda, Subaru as Japan's Economy Feels the Pain - Bloomberg
5. Why Japanese Automakers Are Racing to Tear Down Chinese EVs
6. BYD surpass Toyota in Japan's 2024 EV sales

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