When Congress voted in May to restart student loan payments this fall — and then the Supreme Court overturned President Biden’s student loan forgiveness plan in…
fivethirtyeight.com
Good article on th le payment pause ending
“According to other recent research, borrowers who were in distress before the pandemic may be especially vulnerable now. Those with student loan delinquencies during the two years before the pandemic used the pause to increase credit card debt and auto loan debt, according to a
preprint published this May. Distressed borrowers whose loans were paused had 12.3 percent more credit card debt than those whose loans weren’t paused, and auto loans rose 4.6 percent. When forbearance is lifted, those households may find themselves in more financial trouble than they were before. Meanwhile, according to a
Consumer Financial Protection Bureau analysis from June, as many as 20 percent of borrowers have risk factors — like previous student loan delinquencies and new non-student debt delinquencies during the pandemic — that could make them struggle once payments resume. The CFPB also found that 8 percent of student loan borrowers have already fallen behind on other debts, thanks in part to higher interest rates on other kinds of loans.
Those struggles don’t matter just on an individual level — they could ripple out to the country as a whole. Defaults could lower credit scores, deflate markets, and help slow the economy. Short of that, millions of borrowers may just find that they have less to spend, dragging down the consumer spending that’s helped keep the economy afloat — just as the U.S. was hoping to avoid a recession. “If people get stretched thin enough, they may just not be able to pay back the debt on time. And so they might become delinquent, and that could hurt credit scores [and] … cause more financial distress,” Dinerstein said. “
