Cutting student loan relief in September will have consequences: Fed

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  • Biden recently extended the pause on student loan payments through August 31.
  • The New York Fed found that once this pause is over, borrowers say they expect a 16.1% chance of delinquency.
  • This is higher than pre-pandemic levels and a sign of greater financial hardship expected.

Some student loan borrowers don’t feel too confident staying up to date on payments if the relief expires in September.

Thursday, the New York


Federal Reserve

released a study analyze what might happen when the pause on student loan payments expires after Aug. 31 — if President Biden doesn’t extend it again or pass a broad debt forgiveness. Using data from the May 2021 Consumer Expectations Survey, which covers about 1,300 U.S. households, the Fed found that student loan borrowers who participated in the payment pause expect it there is a 16.1% chance that they will become delinquent or fall into arrears if relief is cut in September.

This finding is up from the pre-pandemic rate of 15.6%, and the report says there is a chance that resuming payments could result in delinquencies that “could reach or even exceed the pre-pandemic rate. “.

He added that “low-income, less-educated, non-white, female and middle-aged borrowers will have a harder time making minimum payments and staying current.”

Biden recently extended the pause on student loan payments for his fourth time in office as part of continued pandemic relief, and alongside that extension he announced a plan to restore more than 7 million student borrowers. in default on their debt. before they have to re-enter the refund. It came after pressure from many Democratic lawmakers and advocates who were urging the president for more relief, and while the extension was good news, some Democrats were pushing for that relief to continue at least into next year.

In addition to delinquency rates, the Fed also found that student loan borrowers who received some type of relief on other forms of debt, such as credit cards and mortgages, during the pandemic have a likelihood higher to miss a payment once the relief expires, compared to those who did not receive temporary relief because they “remain more financially vulnerable and expect a higher level of financial insecurity at the future”.

Democrats and Republicans have expressed concerns about the student loan relief that Biden has put in place. While Republicans have argued that the continued extension of the payments pause is unnecessary and costly for taxpayers, Democrats have sounded the alarm about restarting payments before borrowers are financially prepared. The Consumer Financial Protection Bureau also warned last week that 15 million student loan borrowers could face “a rough road” once payments resume.

Although Biden himself hasn’t commented on the potential for additional relief, White House press secretary Jen Psaki said last week that Biden would “make a decision” on whether to cancel the student debt or would again extend the pause in payments before September.

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