Suspension of student loan payments saved borrowers $200 billion
The suspension of student loan payments has saved student borrowers $200 billion.
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 repayments during the Covid-19 pandemic. Among the major discoveries:
- Student borrowers saved $195 billion during Covid-19 pandemic;
- Savings from canceled federal student loan repayments;
- Savings also due to interest rates temporarily set at 0% and no new accrued interest;
- 37 million student borrowers have not been required to make a federal student loan payment since March 2020;
- 10 million student borrowers with private loans or FFELP loans had to make student loan repayments and did not get student loan relief;
- Student borrowers made few voluntary student loan repayments;
- FFELP borrowers struggled to repay their student loans; and
- Once federal student loan repayments restart, student loan delinquencies are expected to rise.
The new report comes as President Joe Biden announced $6.2 billion in student loan forgiveness. That’s on top of the $15 billion in student loans Biden has forgiven since becoming president. This $195 billion in interest-free canceled student loan repayments is an additional amount of student loan forgiveness.
(Here’s who won’t qualify for $6.2 billion in student loan forgiveness)
Student loan arrears set to rise
When student loan repayments resume after May 1, 2022, student loan delinquencies are expected to increase. (A new proposal would extend the student loan payment break and cancel student loans). According to the report, the experience of FFELP student 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 loans issued before 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 requested forbearance during the Covid-19 pandemic, student loan delinquency rates increased by 33% after student loan forbearance 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 have made less progress in repayment student loans before the Covid-19 pandemic. Sen. Elizabeth Warren (D-MA) cited a potential increase in student loan delinquencies and student loan defaults as a major reason why Biden should extend the student loan payment pause beyond May 1. . (Biden could cancel student loan and pause student loan payments this year)
With the impending restart of student loan repayments, student borrowers need to be prepared. While Biden may extend the student loan payment pause, there is no guarantee that he will or that he will grant an extension to every student borrower. Given this, it is safer to understand all of your student loan repayment options. Here are some smart places to start paying off student loans: