8 million borrowers at risk if student loan payment pause ends
A new report claims that 8 million student borrowers will be at risk if the student loan payment pause ends.
Here’s what you need to know — and what it means for your student loans.
The California Policy Lab found 4 key takeaways if the student loan payment pause ends on May 1, 2022:
1. The suspension of student loan payments has provided significant student loan relief.
On average, student borrowers saved $210 per month through student loan payment suspension.
(Biden could extend student loan payment break indefinitely)
2. Credit scores increased for student borrowers during the student loan payment break.
Despite the economic impact of the Covid-19 pandemic, student borrowers have seen an increase in their credit scores. For example, the average credit score of student borrowers whose repayments were suspended fell from 640 to 668. (Biden could cancel student loans for student borrowers in financial difficulty).
3. Nearly 7.8 million student borrowers are at risk of defaulting on their student loans.
If the student loan payment pause ends, 7.8 million student borrowers are at risk of missing a student loan payment. Collectively, these student borrowers owe $280 billion in student loans.
(Here’s who won’t qualify for $6.2 billion in student loan forgiveness)
4. Student borrowers of all ages have benefited from student loan payment suspension.
The suspension of student loan payments didn’t just help Gen Z. On the contrary, the average age of affected student borrowers was 36, while 15% of student borrowers were over 50. The average amount of suspended student loans for an affected student borrower group is approximately $36,800. However, 31% of these student borrowers owed less than $10,000. (The new proposal would extend the student loan payment break and cancel student loans).
What happens if student loans restart
Federal student loan repayments are expected to resume after May 1, 2022. This means:
- federal student loan payments will be due monthly;
- your regular interest rate will restart; and
- wages can be garnished to pay defaulted student loans.
(Here are 6 major changes to student loan forgiveness). President Joe Biden may extend this temporary student loan relief. If that happens, it would be Biden’s fourth expansion and sixth expansion overall. Congress passed the Cares Act — a $2.2 trillion stimulus package — in 2020, which gave student borrowers historic student loan relief in the wake of the Covid-19 pandemic. Student borrowers were not required to make a single federal student loan payment during Biden’s presidency and for approximately the last year of President Donald Trump’s presidency. Sen. Elizabeth Warren (D-MA) and other members of Congress have expressed concern that the end of student loan relief will lead to an increase in student loan delinquencies and defaults. As such, progressive Democrats are calling on Biden to extend the student loan payment pause through the end of the year and, in some cases, into 2023.
Student loans: next steps
There is no doubt that this temporary student loan relief has helped student borrowers weather tough economic times and an emergency health crisis. (Student loan cancellation and student loan payment suspension are confusing. Here’s what to know). This student loan relief enjoyed broad bipartisan support early in the Covid-19 pandemic. Over time, however, Democrats and Republicans have diverged on their support for continued student loan relief. Several Republicans are encouraging Biden to end student loan relief immediately. This is especially the case as the economy improves and unemployment is near historic lows. However, some Democrats say the Covid-19 pandemic is still ongoing and it’s too soon for student borrowers to start paying again. While this report historically explains the impact of the student loan repayment pause, policymakers will focus on the need to continue student loan relief now. There is no guarantee that Biden will extend the student loan payment break. However, White House Chief of Staff Ron Klain indicated that was a possibility. The US Department of Education has also asked student loan servicers to stop alerting student borrowers to the restarting of student loan repayments. That said, student loan repayments are currently postponed to restart after May 1, 2022.
The most important step you can take is to develop an action plan to tackle student debt. Here are some smart ways to save money on your student loans: