Finance

Student loan borrowers saved nearly $200B from repayment freeze: analysis

Close to $200 billion dollars have been saved by student loan borrowers under a repayment freeze that started during the pandemic, a new analysis found, but researchers believe those borrowers will struggle to make repayments once the freeze is lifted.

An analysis by researchers from the Federal Reserve Bank of New York released on Tuesday found that an estimated $195 billion had been saved by close to 37 million student borrowers since a student repayment freeze began in March 2020.

The researchers noted that this freeze was only applicable to those who had direct federal student loans and not those with private loans or Family Federal Education Loan (FFEL) loans that were owned by commercial banks.

The researchers said that the difficulties those with FFEL loans had making payments during the pandemic “suggest that Direct borrowers will face rising 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 as of February 2020.

Given that, and that direct borrowers were making less progress repaying their loans prior to the pandemic when compared with those with FFEL loans, the researchers said direct borrowers will likely experience difficulties repaying their loans after the freeze is lifted.

Although FFEL borrowers “will likely face a healthier economy going forward, Direct loan holders have higher debt balances, lower credit scores, and were making less progress on repayment than FFEL borrowers prior to the pandemic,” the researchers wrote.

“As such, we believe that Direct borrowers are likely to experience a meaningful rise in delinquencies, both for student loans and for other debt, once forbearance ends.”

The analysis comes just over a month before the moratorium on federal student loan payments and interest accrual is set to expire. The moratorium, which began under the Trump administration and has been continued by multiple extensions, was extended through May 1 by President Biden.

Tags Joe Biden student debt cancelation student loan moratorium Student loans
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