Delinquencies will increase if payments resume

Data: New York Fed Consumer Credit Panel/Equifax;  Graphic: Axios Visuals
Data: New York Fed Consumer Credit Panel/Equifax; Graphic: Axios Visuals

Tens of millions of Americans haven’t had to pay off their student loans in the past two years – and a new study suggests many may struggle when the bills hit again.

Why is this important: Payments are scheduled to resume May 1 on direct federal student loans. President Biden is considering whether to extend the moratorium on payments again, while lawmakers debate whether to completely forgive some student debt.

Driving the news: Nearly 37 million borrowers have saved about $195 billion from the moratorium through April 2022, according to a report released Tuesday by the Federal Reserve Bank of New York.

  • The researchers found that student borrowers who did not benefit from the extended moratorium had default rates on other debts (non-mortgages) 33% higher than those who did.
  • Borrowers exiting the moratorium are now “likely to experience a significant increase in delinquencies, both for student loans and other debt, once forbearance ends,” researchers Jacob Goss, Daniel Mangrum and Joelle Scally wrote.

The big picture: Generally, Republicans on Capitol Hill oppose a further extension of the payment moratorium, while Democrats support an extension, reduction or cancellation of loans.

  • The Department of Education recently told student loan officers to refrain from notifying borrowers that their payments would resume soon, Politics and the the wall street journal reported.

Be smart: Re-engaging borrowers after a two-year moratorium will be difficult.

  • The Ministry of Education does not have valid email addresses for 13% of borrowers covered by the moratorium, although it may be able to reach them by other means, according to a recent report by the Government Accountability Office.

To note : 210 borrower advocacy organizations wrote a letter to President Biden on March 7 urging him to extend the payment break.

  • “It is clear that payments should not resume until your administration fully delivers on the promises you made to student borrowers to fix the broken student loan system and write off a substantial amount of student debt. federal,” the groups said. wrote.

The other side: Republicans to say that canceling student loans would disproportionately benefit the wealthy and exacerbate inflation.

  • And some 10 million borrowers with private loans or Federal Family Education Loans (FFEL) held by commercial banks are not covered by the moratorium.

The bottom line: The argument over the payment moratorium becomes a larger fight over the broader student loan system.


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