Student loan payment pauses have 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 by the Federal Reserve Bank of New York highlights student loan repayments during the COVID-19 pandemic. Among the major findings:
- Student loan borrowers saved $195 billion during the COVID-19 pandemic;
- Savings due to discount federal student loan payments;
- Savings even with interest rates temporarily fixed at 0% and no new interest accruing;
- As of March 2020, 37 million student loan borrowers are not required to make federal student loan payments;
- 10 million student loan borrowers with private loans or FFELP loans were required to make student loan payments and did not receive student loan relief;
- Student loan borrowers made some voluntary student loan payments;
- FFELP borrowers struggled to make student loan payments;
- Once federal student loan payments resume, student loan delinquencies are expected to increase.
The new report comes as President Biden announced the cancellation of $6.2 billion in student loans. That’s in addition to the $15 billion that Biden scrapped when he became president. This is an additional sum of $195 billion of forgiven student loan payments and no interest student loan cancellations.
Student loan delinquency expected to rise
When student loan payments resume after May 1, 2022, student loan delinquency is expected to rise. According to the report, the experience of FFELP student loan borrowers during the COVID-19 pandemic is a barometer of future student loan repayment difficulties that other borrowers may face. FFELP student loans are a type of federal student loan 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 break. While some FFELP borrowers sought forbearance during the COVID-19 pandemic, the student loan delinquency rate increased by 33% after student loan waivers ended. Compared to FFELP borrowers, direct loan borrowers – who collectively hold $1.3 trillion in federal student loans – have higher student loan balances, lower credit scores and less progress on student loan repayments before the COVID-19 pandemic. Sen. Elizabeth Warren (D-MA) has referred to a potential increase in student loan delinquency and student loan default as a major reason why Biden should extend the student loan payment pause beyond May 1.
With student loan payments starting to resume soon, student loan borrowers should be prepared. While Biden can extend the student loan payment break, there is no guarantee that he will or will provide an extension for each student loan borrower. Given this, it is safest to understand all your options for student loan repayment. These are smart places to start paying off student loans: