NerdWallet: Student loan borrowers are struggling despite payment pause, and more uncertainty looms

by | Dec 22, 2022 | Stock Market

This article is reprinted by permission from NerdWallet.  Federal student loan borrowers haven’t had to make payments on their loans since March 2020, and the pause could continue until the summer of 2023. But even with that pressure off, more of them are struggling, according to a November report from the Consumer Financial Protection Bureau.

In September, 7.1% of student loan borrowers who were not in default on their loans at the start of the pandemic had trouble repaying other debts, up from 6.2% at the start of the pandemic, the study of about 34 million borrower credit reports found. Borrowers with a history of defaulted student loans are even worse off; the portion struggling with other bills jumped from 9.8% to 12.5% in that same time frame. The percentage increases may seem small, but they represent hundreds of thousands of borrowers. The situation could worsen when student loan repayment resumes next year, but one-time student debt cancellation of up to $20,000 per borrower — now on ice as the program’s legality is challenged by multiple lawsuits — could be a big help, the CFPB found.  Here’s what the new data means, and what borrowers can do to prepare now.Student debt cancellation could alleviate credit trouble President Biden’s student debt cancellation plan — up to $10,000 per borrower who earns less than $125,000, and $20,000 for Pell Grant recipients — could have an outsized impact on those who expect to struggle when payments eventually resume.  Nearly half of borrowers behind on other loans could have their student debt wiped away completely. Twenty-five percent of borrowers with a non-student-loan delinquency have less than $10,000 in student debt to pay off. Another 19% of these borrowers have balances between $10,000 and $20,000. “Unless the [Education] Department is allowed to provide debt relief, we anticipate there could be an historically large increase in the amount of federal student loan delinquency and defaults as a result of the COVID-19 pandemic,” Education Department Undersecretary James Kvaal said in a recent court filing. Ramifications are far-reaching. A credit payment of any kind that’s delinquent — or more than 30 days past due — can tank your credit score by as much as 100 points. Defaults can be even worse for a borrower’s credit score. The timing of when an overdue bill enters default depends on the loa …

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