Study: end of student loan repayment freeze, difficulties to follow
(The hill) – Nearly $200 billion was saved by student borrowers under a repayment freeze that began during the pandemic, according to a new analysis, but researchers believe these borrowers will struggle to make repayments once the frost has lifted.
An analysis by researchers at the Federal Reserve Bank of New York released on Tuesday found that about $195 billion had been saved by nearly 37 million student borrowers since the student repayment freeze began in March 2020.
The researchers noted that this freeze only applied to those with direct federal student loans and not to those with private loans or Federal Family Education Loans (FFELs) held by commercial banks.
The researchers said the difficulties FFEL loan holders are having in making their payments during the pandemic “suggest that direct borrowers will face increased delinquencies once forbearance ends and payments resume.”
The analysis noted that between students who had direct federal student loans, private loans, and FFEL loans, those with direct federal student loans had higher debt balances and lower credit scores in February 2020.
Given this and the fact that direct borrowers were making less progress repaying their loans before the pandemic compared to those who had FFEL loans, the researchers said direct borrowers are likely to have difficulty repaying their loans. after the frost has lifted.
Although FFEL borrowers “will likely face a healthier economy in the future, direct loan holders have higher debt balances, lower credit scores, and were making less repayment progress than FFEL borrowers before the pandemic,” the researchers wrote.
“As such, we believe direct borrowers are likely to experience a significant increase in delinquencies, both for student loans and other debt, once forbearance ends.”
The analysis comes just over a month before the moratorium on federal student loan repayment and interest accumulation expires. The moratorium, which began under the Trump administration and continued through multiple extensions, was extended through May 1 by President Joe Biden.