How the Student-Loan Payment Pause Hurt Borrowers

Many used the long Trump-Biden moratorium to pile on credit-card, mortgage and other debt

By Allysia Finley. Excerpts:

"According to a June UBS survey, 62% of student-loan borrowers agreed with the spending philosophy of “live for today because tomorrow is so uncertain.”"

"The payment pause, which President Biden prolonged, enabled college grads to spend beyond their means while his promises of loan forgiveness encouraged them to pile on the debt—not only for expensive advanced degrees but also homes, cars and travel. As a result, borrowers are in a worse position financially than before the pandemic."

"two-thirds of borrowers say they don’t know how they will resume making payments once the pause ends next month."

"The Biden administration repeatedly extended the pandemic payment pause before announcing debt forgiveness of $10,000 to $20,000 per borrower last summer. The Supreme Court struck this down, but the administration’s Plan B will cap payments at 5% of discretionary income and forgive remaining balances after 20 years."

"most borrowers will see their payments slashed by more than half, saving them thousands annually. Grads making less than $32,800 won’t have to pay a penny."

"$200 billion that the pandemic pause has cost the government."

"borrowers are now deeper in debt than before the pandemic."

"53% of student-loan borrowers added bank credit card debt during the pandemic, while 36% took on new auto loans and 15% took out new mortgages."

"A typical college grad with a master’s degree from NYU earns $62,745.

UPS

drivers on average will make $170,000 in pay and benefits at the end of their new five-year contract."

"A University of Chicago study found the payment pause had a large “stimulus effect” on the economy as borrowers substituted “increased private debt for paused public debt.”"

"Borrowers with paused payments added an average of $1,800 in other debt during the first 18 months of the reprieve."

"debt relative to income grew more for borrowers whose payments were paused than the broader population."

"Among the top income quartile of borrowers—people making more than $94,425 and couples earning more than $188,850—delinquencies on nonstudent debt now exceed pre-pandemic rates by 25%."

"government promises of loan forgiveness and the extended payment pause encouraged excessive spending and bad financial management."