At a Glance:
- The forbearance program suspension is set to terminate toward the finish of April.
- The New York Fed confirmed that an estimated $195 billion worth of payments have been waived.
- Delinquency rates fell among borrowers covered by the two-year forbearance program to a low of 3.6% toward the end of 2021.
A forbearance program was put in place during the COVID-19 pandemic to cover the increasing delinquencies last year among a smaller pool of U.S. student loans. Problems are likely to arise for almost 37 million loans when that program ends, the following was stated by New York Federal Reserve analysis.
Since 2020, the borrowers covered under the forbearance program have not been required to make payments on their loans. However, the suspension of reimbursements is set to terminate toward the finish of April.
The New York Fed confirmed that an estimated $195 billion worth of payments have been waived.
Delinquency Rates on Rising
Borrowers in a different smaller pool of around 10 million loans offered privately or through the Federal Family Education Loan (FFEL) framework and not covered by the forbearance program battled with their debt installments in the past two years. Specifically, from March last year delinquency rates for FFEL borrowers have been on the rise and returned to pre-pandemic levels before the finish of December.
On the other hand, delinquency rates fell among borrowers covered by the two-year forbearance program to a low of 3.6% toward the end of 2021.
This is not good news for those covered by the program who had higher debt balances, lower credit scores, and were making less progress on repayments than FFEL borrowers before the advent of the pandemic.
The New York Fed economists wrote in a blog post, “As such, we believe that…borrowers are likely to experience a meaningful rise in delinquencies, both for student loans and other debt, once forbearance ends.”
