During the covid crisis, a tolerance program was set up in the USA on student loans allowing borrowers to suspend repayments of their loans since March 2020. The period of suspension of payments ends at the end of April 2022.
A surge in delinquencies last year among a smaller group of U.S. student loans not covered by the forbearance program implemented during the COVID-19 pandemic signals likely trouble ahead for nearly 37 million loans when that program will end, an analysis from the New York Federal Reserve showed on Tuesday. Over this period, the amount of loan repayments that have been suspended is estimated at $195 billion, the New York Fed said.
Borrowers of a separate, smaller group of about 10 million loans granted privately or through the Federal Family Education Loan (FFEL) system and not covered by the tolerance program have struggled to repay their debts over the past two years. In particular, from March last year, FFEL borrower default rates increased and returned to pre-pandemic levels by the end of December.
By contrast, default rates for borrowers covered by the two-year tolerance program fell to 3.6% at the end of last year. This does not bode well for people covered by this program, who had higher debt balances, lower credit scores and were making less progress with their repayments than FFEL borrowers before the pandemic began. .
“As such, we believe borrowers are likely to experience a significant increase in defaults, both for student loans and other debt, once forbearance ends,” the economists at the New York Fed in a blog.
–
