Student-loan freeze led to big credit score gains, N.Y. Fed says

Abstract

The pandemic-era freeze on student debt payments has "Dramatically" improved credit scores for Americans who borrowed money to pay for college, the Federal Reserve Bank of New York said. About 30 million people saw improvements in their risk profile, with the biggest gains going to borrowers who were delinquent before the pandemic, New York Fed economists said in a blog post on Tuesday. It's currently set to expire on Aug. 31, though President Biden's administration is weighing another extension, as well as a partial debt forgiveness for some borrowers. "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 balancesWith 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. 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.D.C. debt leaderOn average, student borrowers in and around the nation's capital owed the most at the end of 2021.