The Student Loan Pause Has Made Borrowers Worse Off
A new working paper finds that borrowers whose loan payments were paused actually had more debt at the end of 2021 than those whose loans were never paused.
The over three-year-long moratorium on federal student-loan repayment has long been hailed as a godsend for student loan borrowers. While announcing yet another extension of the moratorium in December 2021, President Biden praised it as "badly needed breathing room during the economic upheaval caused by the global COVID-19 pandemic."
However, a new working paper from the National Bureau of Economic Research indicates that borrowers whose loans were frozen by the moratorium actually ended up in a worse position than they started in—and have even accrued more student loan debt.
In March 2020, the Trump administration announced a moratorium on federal student loan payments for 60 days, citing the financial hardship faced by borrowers in the early days of the pandemic. In the three years since, the pause has been extended eight times with a variety of legal justifications. Payments are still currently paused, though the recently signed debt ceiling bill sets a hard expiration date for the moratorium on August 30.
The total cost of the pause is estimated to be as high as $5 billion per month, or almost $200 billion by the time repayment starts in September. And all that spending might not have even helped those whom the moratorium was supposed to benefit. According to the paper, those whose loans were frozen by the moratorium actually took on more debt—borrowing more on credit cards and mortgages and even accruing more student loan debt rather than working to pay off other debt they owe.
The paper compared those whose student loans were frozen by the moratorium because their loans were held federally to those whose student loans were not frozen because their loans were private. There were stark differences between the two groups. For those whose loan payments were paused, they did reap some benefits, like increased credit scores and a decrease in delinquency on student loan debt. However, by other metrics, they actually became worse off. By the end of 2021, borrowers who saw their student loan payments paused increased their credit card, mortgage, and car-loan debt by $1,800 on average and even took on an additional $1,500 in student loan debt compared to those whose loan payments were not paused by the moratorium. Rather than being the "badly needed breathing room" that Biden suggested, the student loan payment pause has actually resulted in borrowers ending up financially worse off than they were before.
"Perhaps paradoxically, temporary student debt relief leads to higher overall household debt levels and larger future debt burdens," the paper reads. "The results indicate that debt payment pauses can increase consumption in the short term, but that overall debt increases, as borrowers use increased liquidity to service new debt."
Not only did the student loan payment pause cost taxpayers billions, but it also didn't even help decrease the debt owed by those whom the pause was supposed to benefit. Like many expensive government interventions, the student loan moratorium made everyone—including those the program was meant to help—worse off.
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Ahh. But your forget. Our government worke betters all benefitted from it since the pause still counted towards their loan forgiveness dates for working a government job for 10 years. Check. Mate.
Given the rejection rate for public service forgiveness was previously 99%, don’t count your chickens before they’re slaughtered.
It might be better to eliminate those programs rather than to pretend that they are available to people.
Then how else would the government create debt slaves?
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Biden relaxed the rules completely.
https://www.ed.gov/news/press-releases/thanks-temporary-changes-us-department-education-announces-public-service-loan-forgiveness-surpasses-10-billion-debt-relief
Only cost us 10B so far.
For sound economic perspective go to https://honesteconomics.substack.com/
no
Costing taxpayers billions, just like every other bailout ever. Direct taxation is unlikely the source of credit created out of thin air by the federal government.
Did you say the same thing about the PPP loan forgiveness?
Yes.
Most people here did. Narrative hurting?
Chuckles isn’t very bright.
Man. Act blue is desperate if you’re their best.
He doesn’t have to be their best.
To take a Soviet doctrine, quantity has a quality all its own.
It was unnecessary, bad policy but at least it was authorized and funded by Congress.
That’s too bad.
However I can name one group that’s much better off financially because of Biden: billionaires!
It’s fascinating how closely the modern Democratic Party resembles the worst stereotypes of the Republican Party of yesteryear: they trick poor people into voting for them, then get in power and serve the interests of billionaires and defense contractors. 🙂
#OBLsFirstLaw
I’m not 100% sure, but I think all Democrats do is project their worst tendencies on their enemies.
It’s hardly a coincidence that the Dems are increasingly becoming the party of the super-wealthy who benefit the most from the inflationary policies that progressives think are the only way to “combat inequality”, and the super-poor who are trapped into near-permanent dependence on the multi-tiered structure of “public assistance” and refundable tax credits which create the equivalent of a 100% or higher marginal tax rate for those who can’t suddenly double or triple their income with a job change. Add to that some “single-issue” ideological voters who want to eliminate either guns or restrictions on abortion (often both) and the identitarians who can’t seem to avoid their pavlovian response to pandering buzzwords like “equity” or “representation” and won’t admit how deeply the structure of their worldview overlaps with that of the small number of remaining severe racists.
“have even accrued more student loan debt.”
Classic moral hazard. The only people who have wanted to do something about the system that causes people to create this massive debt were — Jill and Joe Biden, with their free community college plan. But that plan was DOA on Capitol Hill.
The system for financing postsecondary education is totally broken. This system will eventually crash; debt relief might be a part of the fix but only a minor part.
Wow, I didn’t hear about how generous the Biden were. Imagine that, they were going to pay for everyone’s community college. That “10 percent for the big guy” must have really added up!
Jebbus, what a moron.
Imagine alluding to being a libertarian in another thread then coming to this one and simping for the Biden’s and tax payer funded college.
“Classic moral hazard. The only people who have wanted to do something about the system that causes people to create this massive debt were — Jill and Joe Biden, with their free community college plan. But that plan was DOA on Capitol Hill.”
Awfully nice of them to be so generous with my money.
Make student loans able to be ended via bankruptcy and put colleges on the hook for half of it. That will fix a lot of problems quite quickly.
The root of the problem is that the cost for a post-secondary education has increased much faster than inflation.
It’s almost like – I dunno – politicians are totally clueless about the difference between pausing payments on loans and forgiving the loans. They are either ignorant about things like cause and effect or they don’t want to know about it. One of the reasons the Constitution requires Congress to decide about these things is that it’s a lot harder (although not impossible) for a large committee to ignore facts and general principles when debating complex actions than it is for an Executive to take action without debate.
I’m still waiting for my Obamaphone.
I don’t think it’s clear that they are worse off. They might be more in debt, but presumably they used the money to buy things they needed that they couldn’t before, like cars.
Personally, it saved me $400 a month, plus another $1000 a year because I actually got a tax refund instead of the government taking it all.
My credit card went from $3000 to paid off and I’ve saved up $4000 in savings. Now if I had good enough credit to buy a new car, then yeah, I might be like those people. But I’d also have a new car and not a ’88 GMC
It saved me 14k in payments, and no interest has accrued. The government lockdown cost me my job, and it took me six months to find another. That six months cost me 40k in salary and another 20k in benefits. Plus unemployment was tied up for six months, and becauuse I had received one week of “extra” payment when I was unemployed in 2014 and didn’t pay it back (because I never received a notice of overpayment), I was disqualified from receiving any pandemic unemployment. I withdrew 10k in retirement when my unemployment claim languished for seven months. Then I got another job, but nine months after I started, they issued an mRNA mandate, my religious exemption was denied, and I lost that job, which cost me another 40k in salary and 20k in benefits. So I’m down 90k plus benefits, and I make half of what I made before the lockdown and mRNA mandate; but hey, at least I didn’t have to make 14k in student loan payments. I feel like such a freeloading looter.
So there are two distinct issues. One is the loan savings (or not), the other your personal (un-)employment experience during Covid.
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But interconnected. Ted obviously was taking advantage of the moratorium on interest on his student loan to pay it down interest free. It would also reduce the interest he would later owe when the pause was lifted. Top that with the loss of revenue that Ted could also have used to further pay down the interest free loan. And the mandate to vax when the vax was ineffective. I’d say Ted has a legit beef. Try to do right and still get screwed.
Lockdowns were unnecessary and reckless.
Why would someone need to give you a notice that you were overpaid? Didn’t you know that you were paid a week more than you should have been paid when you got a new job? Shame on people like you for keeping money they know they are not entitled to just because someone didn’t ask for it back. Seriously dude, when the cashier at Burger King gives you more change than s/he should have, do you keep it? I would assume you do…
Surprise! Droolin’ Joe did something, something got screwed up!
An excellent behavioural finance experiment with not unpredictable results. Many years ago I formulated the windfall hypothesis to explain the behaviour of Japanese companies after they were able to borrow money effectively for nothing – that contrary to homo economicus models, people treat free money or “won” money differently from earned money, and are inclined to waste it. It’s easy to see how the windfall hypothesis explains behaviour here.
“An excellent behavioural finance experiment with not unpredictable results…”
Yes.
D’s fuck with the market, get horrible results. No experimentation required.
Democrats can’t do anything right.
“during the economic upheaval caused by the global COVID-19 pandemic.”
During the economic upheaval caused by the government’s overreaction to the global COVID-19 pandemic, you mean?
I wonder how bad it would’ve really been if instead of completely screwing everything up straight to hell the government instead just let people decide on their own if they wanted to go to a restaurant, movie, work etc
But what about the people who would make the wrong decision?!?!?!?
So people who don’t expect to be forced to pay their debts take on more debt than people who actually pay their debts? Mind Blown!
Bingo! This entire article is a sham. The increased debt has nothing to do with the “loan pause”. It has everything to do with people assuming more debt on their own. Notice how only Trump is mentioned?
“According to the paper, those whose loans were frozen by the moratorium actually took on more debt—borrowing more on credit cards and mortgages and even accruing more student loan debt rather than working to pay off other debt they owe. ”
This quote pretty much says it all.
Plus the assumption that the debt is going to be forgiven.
One of our acquaintances is an elementary school principal who took out a bunch of student loans for grad school plus an MBA. Guess what she and her husband used several thousand dollars of those loans for?
A vacation to Ireland and two trips to Disneyland in three years. And they did it specifically because they assumed that Democrats were going to jawbone a debt jubilee for student loans before she needed to pay them off, and barring that, she could just put in for the “public service” payoff in ten years.
Gee, I fucking wonder why so many people have tens of thousands in student loan debt since Obama came into office?
Isn’t “worse off” the criteria on which the student loan forgiveness program is based? Insofar as the forgiveness rectifies borrowers from being worse off.
Regardless of the proximate cause of the worse-off-ed-ness, seems like Camp just made the case that the forgiveness program is justified. Nice work, Camp!
This is the dumbest thing I’ve read yet. Don’t connect idiotic behavior to the loan moratorium as a default; at least show the people who did something useful with the opportunity instead of just the idiots who didn’t. For instance, I took the moratorium at zero interest to collect the money I would have paid into a bundle and payed off $4700 on a loan , eradicating it completely. Done and dusted. Not only is my credit better for the entire period of equivalent “on-time” payments, but I’ve killed a loan, lowered my debt to income ratio, and made progress on the remain portions of my loans; something I couldn’t have done in the same amount of time on my own (I could pay it… it would just take years to do the same thing). A little common sense is all it takes, but it seems they took the worst behavior and applied the same paintbrush to the whole effort … which is disingenuous at best. I don’t even like Biden, but at least try not show bias.
“…I don’t even like Biden, but at least try not show bias.”
You seem to have missed most of the articles from the last, oh, 7 years or so.
Don’t connect idiotic behavior to the loan moratorium as a default
Why not?
at least show the people who did something useful with the opportunity instead of just the idiots who didn’t.
The idiots who didn’t are legion.
For instance, I took the moratorium at zero interest to collect the money I would have paid into a bundle and payed off $4700 on a loan , eradicating it completely.
Uh, couldn’t you have just used it to pay down your principle on your student loan debt?
The program created a moral hazard that would not have existed, and the foolish fell into the trap. So it hurt people – all the whileBiden and others are taking credit as if their good intentions were all that counts. Typical Donkey behavior.
You seem to have missed most of the articles from the last, oh, 7 years or so.
Supposedly these are educated people right? It is college student loan debt. That means they have an education.
Then it isn’t ignorance, just plain old stupidity.
It’s stupidity when you spend $150,000 on a Masters Degree in Gender Studies .
These young people are not living in the real world.
There are a whole lot of college graduates, even PHD’s, that would have flunked arithmetic when I was in 5th grade.
The paper compared those whose student loans were frozen by the moratorium because their loans were held federally to those whose student loans were not frozen because their loans were private.
Is there reason to believe that these two groups of borrowers were the same in terms of ability to repay the loans prior to the pandemic? I would not think so. Any conclusion drawn from differences in how these two groups did while federal loans were paused has little validity unless the groups were statistically similar aside from whether they had federal or private student loans.
However, a new working paper from the National Bureau of Economic Research…
It should be noted that working papers like this are exactly that – working papers.
NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.
This article does link to that paper (which I just quoted from), so anyone with the time and interest can see if the paper addresses my skeptical question. I am not that interested if the author of this article didn’t think to ask that pretty obvious question herself.
It’s not like anything else happened during this time period.
I mean I bought a house while my student loans have been on pause so I suppose I technically have more debt, but also…I own a house. Hard to argue that I’m “worse off.” The pause was tremendously helpful for me.
No, you don’t own the house, the bank that you borrowed the money from owns it. Even then the state has a say in who gets it when you can’t or don’t pay property taxes. See how long you own it then.
You must be fun at parties.
Every single policy of the democrats proves to be a disaster. It’s a feature of government run by children.
The results of Bill Clinton’s college student loan racket, the lock downs , which proved nothing and that so many chose to obtain useless, unmarketable degrees in “Gender Studies” “Wymyn’s Studies” Library Science and other assorted useless and unnecessary degrees that provide absolutely no use to anyone in business unless they want to hire someone who will ultimately create trouble within the work place.
I have no sympathy at all for those who have $100,000 or $150,000 in student loan debt with an equally useless degree that provides for nothing.
On the other hand someone who chose a technical career such as welding, electrical, HVAC and auto tech, A&P (airframe and powerplant) have a much better chance at employment without the huge debt. Airlines are crying for new pilots. Some airlines have had to shut down some of their flight routes because of the lack of pilots.
So in effect the person who chose a career in say electrical service could end up shutting off the electric power to someone whose college degree in Art History or Gender Studies couldn’t afford to pay because they have no job and no paycheck.
It didn’t make borrowers worse off. Any borrower could have continued paying, or they could have put the money into an interest-bearing account.
What the pause on the student loan debt payments did is let stupid people make more stupid decisions. It is their stupidity, not the pause, that made them worse off.
Yes!
The borrowers don’t care. They get extra cash in hand.
They’re all counting on Discharge in Death.
As much as I am against student loan forgiveness, this “Study” is idiotic and the conclusions it presents are downright silly.
It compares people with private student loans, to people with federally subsidized student loans.
EVERYONE knows that the federally subsidized student loans are a better deal than private loans, so the ONLY people ending up with private loans are people who don’t qualify for subsidized loans.
The people who can’t qualify to get a subsidized loan are because they come from high income families or are high income themselves.
So um yeah, of course poor people fared worse during the pandemic and ended up in more debt than people from wealthier homes. It wasn’t the pause on student loans that made the difference, it was their econimic class that did.
Seriously stupid.
The article sheds light on an important perspective regarding the impact of the student loan pause. Indeed, while it provided temporary relief to many, the long-term implications might not be as beneficial as initially thought.
It’s essential to consider other means of building financial stability during such periods of uncertainty. For instance, American Hartford Gold https://www.newsdirect.com/guest-content/american-hartford-gold-review could be a viable option for some. They offer precious metals backed IRAs, which have historically been a good hedge against inflation and financial market volatility. These investment vehicles could provide some financial cushioning and potentially alleviate the strain of restarting loan payments once the pause is lifted.
However, it’s clear that a comprehensive, long-term solution to the student debt issue is required, and this should be a top priority for policymakers.
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