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Edited by: James Desio and Carter Hutchinson

Happy Thursday! In today’s newsletter, we examine the distribution of student loan repayment in March 2025, the changes to the ratio of public debt to GDP that could be caused by the House Republican budget bill, and the falling populations of major Democratic cities.

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1. The Failure of the Student Loan System

Topline: Only 35 percent of student loan borrowers were in repayment as of March 2025. AEI’s Preston Cooper warns that the failure of the Biden administration to transition borrowers back to repayment after the pandemic caused a wave of delinquencies when payments resumed in October 2024.

The Current Situation: Of the 35 million borrowers with federally managed loans not enrolled in school, just 12 million were in repayment as of March, while 7.4 million were delinquent in their debts. The majority of those delinquent were at least three months behind on payment. Ten million borrowers are now in forbearance—largely those awaiting the legal verdict of the SAVE plan. The end of the forbearance will likely bring a new wave of delinquencies. 

Credit Costs and Consequences: When millions of borrowers became 90 days delinquent on their loans in January 2025, their failure to pay was reported to credit bureaus. Many stated that they did not know payment had resumed and that their credit scores had fallen by 100 points or more. Before the pandemic, most delinquent and defaulted borrowers had credit scores below 600, but Cooper now claims that delinquencies are impacting borrowers with higher credit scores. 

“The road back to a normal student loan system will not be easy. But the Trump administration’s efforts to manage the return to repayment so far show some promise. Also welcome is a package of reforms under consideration in Congress to block future loan forgiveness and reform the repayment system going forward. It will take sustained effort from the executive and legislative branches to restore the student loan program to health.”—Preston Cooper

2. Bond Market Meltdown

Topline: The House’s budget bill will create a ratio of public debt to GDP that could lead to a bond market meltdown, reports AEI’s Desmond Lachman. The sweeping tax cuts included in the bill would add around $5 trillion to the budget deficit over the next decade. If passed as is, the debt to GDP ratio in the US would be 134 percent of GDP by 2034.

Foreign Factors: The potential for a forthcoming debt crisis in the US is exacerbated by the fact that foreign holdings comprise approximately $9 trillion, or 25 percent, of US Treasury bonds. The US depends on foreigners to continue buying more bonds to finance the widening budget deficit, even as the Trump administration wages a trade war against their nations.

Bond Market Mayhem: A bond market meltdown would be particularly damaging when the economy is already struggling and inflation is rising with chaotic trade policy. Higher interest rates would discourage purchases and investment and the value of banks’ large bond portfolios would be reduced. A further fall in the dollar would also add to inflationary pressure.

“If Mr. Trump wants to salvage his economic record, he would be well advised to back off his “big, beautiful bill” and opt for a more responsible budget policy that might be acceptable to the bond market.”—Desmond Lachman

3. Blue City Exodus

Topline: Newly-released US Census data show that 94 percent of cities experienced population growth from 2023 to 2024, but some of the major cities in blue states, governed by Democratic mayors, continue to have lower populations than in 2020, writes AEI’s Howard Husock.

Democratic Decreases: New York, Philadelphia, Chicago, and Los Angeles have all experienced population decreases since 2020.

• New York City’s population fell by 3.7 percent
• Philadelphia’s population fell by 1.9 percent
• Chicago’s population fell by 1 percent
• Los Angeles’s population fell by 0.5 percent

Why Leave? Mild weather is not the only reason that Americans are abandoning these cities for the Sunbelt. The new census data shows that quality of life and affordability are major causes. Effective local governments can mitigate the issues that plague these major “blue” state cities: housing costs in New York City, crime in Chicago, and homelessness in Los Angeles and Philadelphia.

“It’s hard to avoid the conclusion that ineffective governance has played a role; crime and homelessness, high tax levels and poor-performing public schools are not magnets to draw back former residents or draw in new ones. The fact that all the population-losing cities are run by Democratic mayors helped Donald Trump win the popular vote; even in New York City he ran better than he had in 2020.”—Howard Husock

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