Nearly 545,000 California student borrowers will be at “high risk of struggling to repay their loans” once the federal payment pause ends on May 1, a new study from the California Policy Lab said Wednesday.
The federal breakwhich has been extended three times, started in March 2020, at the start of the COVID pandemic, to relieve pressure on resource-strapped lenders.
“Clearly, the pause in student loan repayments has worked,” said Dalié Jiménez, director of the Student Loan Law Initiative at the University of California, Irvine School of Law.
President Joe Biden is reportedly considering extending the hiatus again.
The nonpartisan Policy Lab study grouped borrowers into three camps:
▪ Prospective Wrestlers: This is approximately 545,000 Californians who are at high risk of missing a payment.
They fall into this group if they were past due or defaulted on a loan in the year before the pause, or if they were in default on an ineligible paused loan during the pause period. They also fall into this group if their credit score in December 2021 was unusually low or if they had new collections or bankruptcies between March 2020 and December 2021.
Nationally, the study estimates that 7.8 million borrowers nationwide fall into this category.
▪ Probable refunders. About 1.4 million borrowers in the state fall into this group if they made voluntary payments on their paused loans, paid off principal on other debts while on pause, took out a new mortgage, or had a rating. decent credit. Nationally, 13.5 million people are in this group.
▪ Unknown. About 588,000 Californians did not “exhibit clear positive or negative patterns in their credit reports, so they were placed in this group,” according to the study.
He noted that “repaying student loans is the most common behavior among student borrowers in general, but the upheaval of the pandemic may cause some in this group to struggle to repay.” Nationally, this group numbers about 6.8 million people.
The average borrower’s overall monthly debt fell by $210, said study co-author Vikram Jambulapati, a graduate researcher at the Lab. The average amount owed by borrowers on break is $36,800. The average age of the borrower is 36 years old, of which 15% are over 50 years old.
The study revealed other benefits: better scores, fewer defaults and less use of revolving credit. The average credit score of borrowers on pause fell from 640 to 668. Default rates on student loans fell from 7.3% before the pause to zero.
This story was originally published March 23, 2022 8:40 a.m.