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Aaron Pisacane 30 Jun 2023 5 min read

6/30/23 UPDATE: Impacts to Private Student Loans When Federal Student Loan Payments Restart in October 2023

Are strategies in place to protect student loan performance?

Impacts to After-Tax Income by Federal Student Loan Payments

As reported by PYMTS on June 6, 2023, Millennials with student loans are projected to lose 6.5% of spending power when Federal Student Loan payments resume in October 2023.  This is based on $33,173 average total student loan debt, $5,591 (~$80,743 annual gross income) average after-tax monthly income, and $365 average student loan monthly payments. 

The breakout of private and federal loans was not discussed, however, the average federal student loan debt for all students, undergraduate and graduate education, was reported by the Federal Reserve at similar levels.

The point is that Millennial (27 to 42 years old) borrowers of private student loans are projected to lose on average 6.5% of after-tax income. Meanwhile, Generation Z (up to 26 years old) are projected to lose on average 4.3% of after-tax income.  An important point is that risk managers are concerned with the tail risks of a distribution of debt and income levels, not the average. 


Timing of Federal Student Loan Payments

After 3 years of the freeze on direct Federal Student Loan Payments, the website of the Department of Education states that payments will resume in October.  Certainly chaos and confusion will ensue in the convening months.  This is the climate that operations will need to operate under.  Without a dynamic risk playbook, the stress levels will only increase. 


Biden Administration and Education Department Three-Month Grace Period

The policy: "safety net period"

On June 29, 2023, Politico reported that the Education Department finalized a three-month grace period for missed payments starting in October.   However, interest will still accrue. There is talk of a rolling renewal of this three-month period. 

How will this impact borrower payment behavior?  There will be a segment of borrowers that will skip payments on their direct Federal Student Loans and a segment that will make payments.  It can not be predicted the levels of each segment.  The drag on private student loan performance will certainly occur, but could be more muted early on. 

Private student loan lenders need to be nimble with their servicing strategies and need the power of data analytics to inform those strategies. At a minimum, monthly analytics will be needed to segment the portfolio and monthly analytics to understand if strategies need to be changed.   This requires active risk management.  Einstein Higher Edu Solutions can support this approach for your organization. 



The risk to private student loan lenders and other lenders is rising delinquencies in Q4 and into 2024. Lower disposable income reduces a borrower’s ability to meet all debt obligations. A lose of disposable income will be material especially for borrowers that are barely meeting their current debt obligations.

It makes sense that the following will play out in private student loan portfolios:

  • Rising forbearance requests to servicers in Q4 2023
  • Rising early-stage delinquencies in Q4 2023 and Q1 2024
  • Rising late-stage delinquencies in Q1 and Q2 2024
  • Rising defaults in Q2 and Q4 2024

This timing can be manipulated to the extent that private student loan lenders provide forbearance upon a borrower request. Similar to the pandemic when forbearance was widely utilized, problem loans would hibernate for a period of time until borrowers are required to make payments. The loan default doesn't go away, its just delayed.


Consulting by Einstein Higher Edu Solutions

Getting ahead of these risks requires data analytics to risk segment the portfolio. The next step is to formulate in-house and third-party strategies tailored to each risk segment. Finally, iterative reactive strategies are needed to manage on-going risks.  A playbook is needed. 

Einstein Higher Education Services can provide much needed expertise, experience, and data analytic capabilities to  manage the risks to your private student loan portfolio. A small allocation of weekly hours will minimize negative impacts to your private student loan portfolio and allow you to sleep better at night.


This is an extraordinary event that requires an additional perspective to bolster your leadership team. The benefits of maintaining performance of your private student loan portfolio does not need to be listed. 

I look forward to helping you manage this unprecedented risk.


Aaron Pisacane

Founder, Einstein Higher Edu Solutions

Affiliate sponsor of the Education Finance Council.

(917) 968-6483