top of page
The Bagel logo
  • Ryan Wittler

The Return of Student Loan Payments Could Spell Trouble for Borrowers


Canva


A new report from the Federal Reserve Bank of New York shows the return of student loan payments could mean trouble for tens of millions of borrowers.


Pandemic relief:


In March and April 2020, the federal government provided unprecedented relief to student loan borrowers by lowering interest rates on Direct federal student loans to 0% and automatically placing the loans in forbearance.

  • The relief resulted in almost 37 million borrowers saving around $195 billion, according to the New York Fed.


The roughly 10 million borrowers with private loans or Family Federal Education Loans (FFEL) held by commercial banks, however, weren’t granted any relief.

  • The lack of relief sent the rate of forbearance for private loans up from 26% in February 2020 to 33% in May 2020 before steadily declining, according to the report.

  • The forbearance rate for FFEL borrowers also increased from 26% in February 2020 to a peak of 36% in June 2020 before falling to levels similar to private loans.


Why it matters:


The New York Fed says the repayment struggles experienced by private loan and FFEL borrowers “foreshadows future repayment difficulties for Direct borrowers” once repayments resume (currently scheduled for May).


The report predicts that while borrowers are probably facing a healthier economy going forward, Direct borrowers have “higher debt balances, lower credit scores, and were making less progress on repayment than FFEL borrowers prior to the pandemic.”

  • Therefore, the New York Fed believes Direct borrowers will “experience a meaningful rise in delinquencies, both for student loans and for other debt, once forbearance ends.”

Bagel HQ, Los Angeles, CA

Contact: business@readthebagel.com

bottom of page