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Fed: Student Loan Defaults Could Occur as Payments Begin in the United States

Defaults on student loans are expected to rise as pandemic debt forbearance ends in May for almost 40 million Americans, a Federal Reserve report issued a warning on Tuesday.

When the Covid-19 outbreak began in March 2020, former President Donald Trump issued a moratorium on some student loan repayments, which his successor, President Joe Biden, repeatedly prolonged and which is now about to expire on May 1st.

 

Two-thirds of borrowers were able to profit from the moratorium, according to research from the New York Federal Reserve Bank, while defaults on other debt commitments increased for the other one-third of borrowers who had to continue making payments on student loan requirements.

When the moratorium on new student loans ends in May, economists Jacob Goss, Daniel Mangrum, and Joelle Scally predict “a considerable surge in delinquencies, both for student loans and for other debt” for those borrowers.

The authors reported a 33 percent greater default rate on non-student and house loans for those whose debt was not covered by the pandemic forbearance than for those who did not have to worry about student debt.

In January, Biden received a letter from 85 members of his own party demanding him to cancel some of the student loan debt, which he did.

U.S. student loan debt currently stands at $1.7 trillion, making it the second-largest source of household debt behind mortgages, according to Federal Reserve research released in June 2021.

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