Cutting off student-loan relief in September could cause borrowers to fall behind on payments at a rate that could 'reach or even surpass' pre-pandemic levels, NY Fed study finds

President Joe Biden.

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• Biden recently extended the pause on student-loan payments through August 31.
• The New York Fed found once that pause ends, borrowers say they expect a 16.1% chance of delinquency.
• This is higher than pre-pandemic levels and is a sign of expected greater financial hardship.

Some student-loan borrowers don't feel too confident about staying current on payments if relief expires in September.

On Thursday, the New York Federal Reserve released a study analyzing what might happen when the pause on student-loan payments expires after August 31 — if President Biden doesn't extend it again or enact broad debt forgiveness. Using data from the May 2021 Survey of Consumer Expectations, which covers about 1,300 US households, the Fed found student-loan borrowers who participated in the pause on payments expect there's a 16.1% chance they will become delinquent, or fall behind on payments, if relief is cut off in September.

This finding is up from the pre-pandemic rate of 15.6%, and the report said there's a chance resuming payments could lead to delinquencies that "could reach or even surpass the pre-pandemic rate."

It added that "lower-income, less educated, non-white, female and middle-aged borrowers will struggle more in making minimum payments and in remaining current."

Biden recently extended the pause on student-loan payments for his fourth time in office as part of continued pandemic relief, and along with that extension, he announced a plan to restore over 7 million student-loan borrowers in default on their debt to good standing before they have to reenter repayment. This came after pressure from many Democratic lawmakers and advocates who were urging the president for more relief, and while the extension was welcome news, some Democrats were pushing for that relief to carry over through at least next year.

In addition to delinquency rates, the Fed also found that student-loan borrowers who received some type of relief on other forms of debt, like credit card and mortgage, during the pandemic have a higher likelihood of missing a payment once relief expires, compared to those who did not receive temporary relief because they "remain financially more vulnerable and expect a higher level of financial insecurity in the future."

Both Democrats and Republicans have expressed concerns with the student-loan relief Biden has implemented. While Republicans argued the continued extension of the pause on payments is unnecessary and costly to taxpayers, Democrats have sounded the alarm on restarting payments before borrowers are financially prepared. The Consumer Financial Protection Bureau also warned last week that 15 million student-loan borrowers could be facing "a difficult road" once payments resume.

While Biden himself has not commented on the potential for further relief, White House Press Secretary Jen Psaki said last week that Biden will "make a decision" about canceling student debt or extend the pause on payments once again before September rolls around.

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Contributer : Business Insider https://ift.tt/5XlgJc1

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