Student Loan Delinquencies May Be Putting The Auto Market Out Of Reach For Borrowers

Purchasing a car may be increasingly difficult for those who have fallen behind on their student loan repayments since credit bureaus began reporting delinquencies again earlier this year.

Jonathan Smoke, chief economist with the automobile industry technology company Cox Automotive, spoke with the Michigan Independent about the adverse effects delinquencies are having on people’s ability to secure an auto loan, a result of lower credit scores and tighter household budgets. Smoke described the potential negative consequences the inability of potential buyers to procure loans may have for Michigan’s auto market.

Congress initially paused payments on federal student loans at the start of the COVID-19 pandemic in 2020; the pause continued until 2023. The rate of delinquency in the repayment of government student loans, reported when  payments are more than 90 days past due, dropped to less than 1% in that period, according to the Federal Reserve Bank of New York.

President Joe Biden implemented a loan forgiveness plan early in his term; it was put on hold by the courts and was ultimately struck down by the U.S. Supreme Court in June 2023. In addition to that plan, he provided loan relief for borrowers through his SAVE repayment plan, which canceled billions of dollars’ worth of student loans for eligible Americans, and through other income-based payment plan options.

When the pause in loan payments ended in October 2023, the U.S. Department of Education began what it called “on-ramping” of collections for a year-long period, during which delinquencies were not reflected in borrowers’ credit scores. The Biden administration’s SAVE plan was blocked by a federal appeals court earlier this year, and without intervention from the Trump administration, delinquencies began appearing on credit reports again in May 2025.

Approximately 1.4 million Michiganders had student loans as of May 2023, totalling $51 billion, according to a press release from the governor’s office.

Of the country’s aggregate student debt, the Federal Reserve reported that 10.2% was delinquent in the second quarter of 2025. Almost 13% of student loans entered serious delinquency (90 days or more past due) during that period, the highest level on record.

Smoke told the Michigan Independent that people saw a boost in their credit scores during the repayment pause, which meant they looked more appealing to lenders who, in turn, offered better interest rates. But now, with the extra weight of the payments, the inverse is happening: People’s budgets and credit scores are taking a hit, hampering their ability to buy a car.

“I think it all makes sense when you look at the pattern of the data and what’s happening, but it’s clearly influencing — probably keeping some people with student loans out of the vehicle market because they just can’t afford to make a purchase,” Smoke said. “But then it also means that the people who have taken out loans are the ones that are struggling now that the student loans are coming due.”

At the same time that credit scores are falling and borrowers are facing the financial strain created by the end of the student loan repayment pause, affordability is still an issue as prices for both new and used vehicles prices remain higher than pre-COVID levels.

Student loan borrowers who took out car loans during the years of the student loan pause benefited from more affordable monthly payment plans than if they were to take out an auto loan today, Smoke said. What complicates the situation for all borrowers, he added, is the influence of auto loan performance, or the rate at which borrowers are repaying their loans, on the types of loans and interest rates banks are willing to offer: “When loan performance is shaky or poor, lenders are more likely to be conservative.”

Auto loan delinquency, which Smoke defined as being 60 days or more behind on payments, has remained high without improvement in recent years, and the restart of student loan payments has indicated to auto industry experts that people may likely be struggling to pay both.

The silver lining, he said, is that there’s not a corresponding increase in auto loan defaults, defined as payments that are more than 120 days late.

“In the so-called payment hierarchy, consumers are prioritizing their auto loan payment above other things, like student loans,” Smoke said. “So at the end of the day, the defaults are what would really trigger an even more significant credit tightening in auto, so thankfully that is not the case.”

Smoke said it makes sense that a consumer with both a student loan and an auto loan who may be struggling to make ends meet is prioritizing keeping their auto payments current: Although the federal government can garnish your wages if federal student loan payments fall behind, they can’t repossess your education. A car would be much more difficult to replace if a borrower was to default on their auto loan.

Purchasing a new vehicle is considerably more difficult than it was in 2019, partially due to the student loan challenges, but also because of higher market prices and interest rates that have reached 25-year highs, Smoke said. Now more than ever, consumer demand is shifting away from purchasing a new vehicle and toward the used vehicle market.

A slowdown in new vehicle production and sales would hit Michigan particularly hard, as its economy is more reliant on the auto industry than other states’. Smoke said it’s too early to judge exactly how this could affect Michigan automakers and suppliers; the effects could be made worse by Trump’s recent tariff policies. Smoke said the trade levies could benefit domestic manufacturers by pushing foreign competitors out of the market.

“Michigan is certainly dependent more on the auto industry, and so if you had a broad slow down in new vehicle production and sales that was equal across the industry, then you would expect Michigan to not be in quite as good a shape, but there are nuances of a slowdown that we think is disproportionately going to impact imported vehicles,” Smoke said.