The student loan payment pause has saved 200 billion for student loan borrowers.
Here’s what you need to know – and what it means for your student loans.
A new report from the Federal Reserve Bank of New York highlights student loan repayment during the Covid-19 pandemic. Among the major findings:
- Student loan borrowers saved 195 billion during the Covid-19 pandemic;
- Savings due to waived federal student loan payments;
- Savings also due to interest rates set at 0% temporarily and no new interest accrual;
- 37 million student loan borrowers haven’t been required to make a federal student loan payment since March 2020;
- 10 million student loan borrowers with private loans or FFELP loans were required to make student loan payments and did not get student loan relief;
- Student loan borrowers made few voluntary student loan payments;
- FFELP borrowers struggled to make student loan payments; and
- Once federal student loan payments restart, student loan delinquencies are expected to rise.
The new report comes as President Joe Biden announced 6.2 billion student loan cancellation. This is in addition to the $ 15 billion student loans that Biden canceled since becoming president. This $ 195 billion of waived student loan payments and no interest is an additional amount of student loan cancellation.
(Here’s who won’t qualify for $ 6.2 billion student loan cancellation)
Student loan delinquency expected to rise
When student loan payments restart after May 1, 2022, student loan delinquency is expected to rise. (A new proposal would extend the student loan payment pause and cancel student loans). According to the report, the experience of FFELP student loan borrowers during the Covid-19 pandemic is a barometer of the future student loan repayment difficulties that other borrowers could face. FFELP student loans are a type of federal student loans issued prior to 2010 by banks and financial institutions that were guaranteed by the federal government. Congress excluded FFELP student loans from the student loan payment pause. While some FFELP borrowers sought forbearance during the Covid-19 pandemic, student loan delinquency rates increased 33% once student loan forbearance ended. In comparison to FFELP borrowers, Direct Loan borrowers – who collectively hold 1.3 trillion of federal student loans – have higher student loan balances, lower credit scores and made less progress on student loan repayment prior to the Covid-19 pandemic. Sen. Elizabeth Warren (D-MA) has referred to a potential rise in student loan delinquency and student loan default as a major reason that Biden should extend the student loan payment pause beyond May 1. (Biden could deliver student loan cancellation and student loan payment pause this year)
With the restart of student loan payments happening soon, student loan borrowers should be prepared. While Biden could extend the student loan payment pause, there is no guarantee that he will or that he will grant an extension for every student loan borrower. Given this, it’s safest to understand all your options for student loan repayment. These are smart places to start to pay off student loans:
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