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Two years after the chaos of the pandemic prompted Congress to pause federal student loan payments, new data show many borrowers have used that extra room in the budget to shore up their overall finances. Some have inched closer to eligibility for student loan forgiveness.
Economists and lending experts say it’s unclear how long that stability will last when the payment pause ends, currently scheduled for May 1. Among the 26.6 million people expected to enter repayment at once, some will inevitably struggle, including unemployed borrowers and those whose wages have not kept up with rising inflation.
Evan White, executive director of the California Policy Lab at the University of California, Berkeley, says to expect an increase in delinquencies and eventually defaults when student loan repayment resumes. That echoes recent projections from a March 2022 New York Federal Reserve report and a January 2022 report from the Government Accountability Office.
Pandemic-related supports like stimulus checks and the payment pause could have been propping people up in a way that makes them look like they’re doing much better than they are, White says. “Or it may be that all of those supports build people up to a better place in a way that will have some sustainability.”
All borrowers can make a plan to manage upcoming payments by reaching out to their servicers, the companies contracted to manage federal loans. If you are at all uncertain of your ability to resume payment, an income-driven repayment plan is your best option.
Here’s how the federal student loan payment pause has affected borrowers.
Overall finances improved
A lot can happen to your finances in two years, but the pause was objectively good for federal direct student loan borrowers in several ways:
Borrowers, on average, experienced $210 of monthly breathing room. Since the start of the payment pause, 37 million borrowers have collectively saved an estimated $195 billion in waived payments, according to the March report from the New York Federal Reserve. Each month, borrowers saved around $210 on average, according to California Policy Lab.
Balances didn’t grow. No interest accrued during the pause, which means borrowers’ balances did not increase.
Borrowers reduced other debt. About 44% of borrowers reduced the amount of debt on their credit cards and 6% of borrowers increased payments on other loans, like an auto or mortgage loan, California Policy Lab found. White says, however, that it’s more difficult to draw a direct line to the pause being the cause of these changes.
Credit scores increased. “The people that saw the biggest boost to their credit are not the doctors and lawyers, it is the people who are struggling that are now the beneficiaries of this extraordinary public policy,” says Mike Pierce, executive director of the Student Borrower Protection Center, a nonprofit advocacy group. Borrowers across the board saw credit score increases, with the most gains among those with the lowest scores and those with a recent delinquency, according to California Policy Lab.
Some borrowers are closer to forgiveness
Every month of the pause could count toward the total borrowers need to become eligible for loan discharge through existing programs.
For public service workers, each nonpayment month has counted toward the 120 payments needed for forgiveness through the Public Service Loan Forgiveness program. To qualify, borrowers had to be working full time for a public service employer during the pause.
Borrowers on income-driven repayment plans — aimed at keeping monthly payments manageable — also can count each nonpayment month toward the 240 or 300 months needed for loan discharge.
A borrower enrolled in these forgiveness programs since the pause began in March 2020 has been credited with at least 24 payments toward their goal. The same is not true for borrowers in more traditional repayment plans.
Borrowers who kept repaying took advantage of 0% rates
Zero percent interest meant borrowers who could afford to make payments could potentially lower their debt faster, but they had to do so by voluntarily contacting their servicers. The New York Federal Reserve report says over 18% of borrowers with direct loans continued making payments.
Among those who made payments were borrowers with a history of actively paying down their balances before the pandemic, as opposed to those whose balances were increasing due to accruing interest.
A fraction of borrowers in default grabbed opportunity
The payment pause offered defaulted student loan borrowers a rare opportunity to get their loans back in good standing — removing the default from credit reports — without having to make a single payment to do so.
Student loan rehabilitation stipulates borrowers must make nine payments at an agreed-upon amount out of 10 possible months. Months spent in forbearance count.
Data from the Education Department show some borrowers did take advantage of that: A total of 602,000 borrowers rehabilitated their loans in 2020 and 2021. But this is likely a drop in the bucket. Department data show that at the end of the first quarter of 2020, 5.7 million borrowers were in default; by the end of 2021, it was 5.1 million.
Even more disheartening, 25% of borrowers in default do not have an email on record with the Education Department, the Government Accountability Office report found. It remains unclear how those borrowers would be reached before collections resume six months after the pause lifts.
Borrowers with private loans missed out
Not all student loan borrowers saw their finances improve as a result of the pause, including private loan borrowers and Family Federal Education Loan program borrowers with commercially held loans.
Most FFEL borrowers whose loans are privately held were not placed in any forbearance and struggled with payments, according to the March New York Federal Reserve report. Some FFEL borrowers whose loans were placed in forbearance saw delinquency rates increase after the end of those periods. And FFEL borrowers also experienced 33% higher delinquency on other non-loan-related debts after forbearance ended.
Betsy Mayotte, president and founder of The Institute of Student Loan Advisors, says most FFEL borrowers didn’t realize the payment pause didn’t apply to them until delinquencies hit their credit report. “I still, today, get people saying, ‘Why am I getting a bill?’” Mayotte says.
Private loan borrowers did not see their loans paused, but they also didn’t experience significant delinquency increases since the start of the pandemic, according to data from Measure One, a data and analytics firm.
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