Almost 60 percent of borrowers with loans from the Department of Education did not make any payments on their loans during a freeze officials instituted in response to the COVID-19 pandemic.
The Federal Reserve Board of Governors published an article Friday from three staff members warning some of the roughly 11.5 million borrowers who have not made payments might not be able to resume after the freeze expires.
“These borrowers hold almost $400 billion in outstanding student loan debt and, prior to the pandemic, were required to pay about $2.8 billion a month toward their student loan debt,” they noted.
Biden is reportedly close to a final decision on canceling at least $10,000 in debt for borrowers earning less than $150,000 or $300,000 for married couples.
“No decisions have been made yet — but as a reminder no one has been required to pay a single dime of student loans since the president took office,” deputy White House press secretary Vedant Patel said last week.
The Fed article says that the borrowers who have not made payments initially saw their financial status improve during the pandemic, but that signs of distress have since started to emerge. Delinquency on credit card, auto and home loan payments began rising toward the end of last year, along with credit card balances, driving their total debt to a slightly higher level than in 2019, before the pandemic began.
The 8.8 million borrowers who made at least one student loan payment during the pandemic freeze are in a better position to resume regular payments, the report added. The authors wrote that about 40 percent of this group made payments during at least 12 months while more than 30 percent made payments for 3 months or less.
The federal government’s actions also changed the status of 3.2 million borrowers from behind on payments to “current,” a group that was disproportionately more likely to not make any payments during the freeze, according to the report, which said they were therefore more likely to fall behind once it lifts.
“Nevertheless,” the authors added, “existing federal student loan repayment plans that tie monthly payments to incomes could help alleviate repayment burdens for vulnerable borrowers who enroll in them.”