The Impact of the Student Loan Payment Pause

Student-loan borrowers were spared $195 billion in loan payments since the federal gov’t froze them at the onset of the pandemic, according to a report released Tuesday by the Federal Reserve Bank of New York.

• Context: Required federal student loan payments were paused when the pandemic began in 2020, and the forbearance end-date has been extended a number of times.

🔢 By the numbers…

• More than 40 million people owe ~$1.6 trillion in federal student debt, an amount larger than credit-card or auto debt. Federal loans make up more than 90% of outstanding student debt.
• Nearly 80% of federal borrowers made no payments during the pandemic freeze.
• Private borrowers experienced 33% higher delinquency on non-student, non-mortgage debt after exiting forbearance than the federal borrowers whose payments remained frozen.

👀 Looking ahead… Required federal payments are scheduled to restart in a little over a month. And afterward?

“[Federal loan] holders have higher debt balances, lower credit scores, and were making less progress on repayment than [private] borrowers prior to the pandemic,” per the report.

• “As such, we believe that [federal loan] borrowers are likely to experience a meaningful rise in delinquencies, both for student loans and for other debt, once forbearance ends.”
• But there may be another extension coming: The Department of Education has emailed the companies that service federal loans and told them to hold off on reminding borrowers that payments would start again in May.

+To those with student debt: Is this report accurate or nah? Hit reply and let us know.