Student-Loan Freeze Led to Big Credit-Score Gains, N.Y. Fed Says
- Some 30 million student borrowers saw scores rise, study says
- Freeze is set to expire on Aug. 31 but Biden may extend it
Share of Borrowers by Credit Score
Credit scores for student loan borrowers increased dramatically
Here are some key takeaways from the New York Fed report.
Better Credit Scores
The share of student-loan balances held by subprime borrowers fell to 26% in 2021, from 36% in 2019. That’s primarily because loans owed to the federal government that were delinquent before the pandemic were marked as current under the forbearance policy, putting millions of households on a sounder financial footing.
“The end of forbearance will have impacts on credit scores, borrowing, and household cash flow over the coming year for the 38 million federal borrowers that have benefited from the pause,” the New York Fed researchers wrote. “Some borrowers will enter delinquency or default.”
Growing Balances
With repayments on hold, about two-thirds of student-debt holders had balances that were growing or flat at the end of 2021, compared with just 48% in 2019. That’s an increase of roughly 3.2 million borrowers.
There was also a shift in the typical size of debts, with larger loans accounting for a bigger share of the total. At the same time, 5.4 million people who were recorded as having student debt outstanding at the end of 2019 no longer owed anything by the end of 2021.
Loan Shifts
Since the pandemic, larger debts have increased as a share of total loans
Source: Federal Reserve Bank of New York Consumer Credit Panel / Equifax
DC Debt Leader
On average, student borrowers in and around the nation’s capital owed the most at the end of 2021. Washington DC topped the list, with an average debt of $53,769, while Maryland ranked second and Virginia fifth.
Student Loans by State
Average balances vary widely across states
Source: Federal Reserve Bank of New York Consumer Credit Panel / Equifax
Note: As of Q4 2021, average balance
“Of the ten states (not including D.C.) with the largest median balance, seven belong to the Southern Census region (Georgia, Maryland, Virginia, North Carolina, South Carolina, Alabama, and Tennessee),” the report found.
Top 10 Student Loan Debt
Seven of top-10 largest belong to the Southern Census region
Source: Federal Reserve Bank of New York Consumer Credit Panel / Equifax
Note: Ranked by median loan amount
Once the forebearence period ends, loan amounts are anticipated to rise and delinquency rates across states in the South are expected to have worse outcomes.
https://www.bloomberg.com/news/articles/2022-08-09/student-loan-freeze-raised-credit-scores-dramatically-ny-fed