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Defaults loom as US student loan payments resume: Fed

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Student loans make up the second-largest share of household debt burdens in the United States, leading groups and lawmakers to call on President Joe Biden to cancel some of it./AFP
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Mar 23, 2022 - 04:28 AM

WASHINGTON — Nearly 40 million Americans will begin making payments on their student loans when a pandemic debt forbearance expires in May, and a Federal Reserve study warned Tuesday of an increase in defaults.

Former president Donald Trump imposed a moratorium on repayments of some student loans when the Covid-19 pandemic began in March 2020, and his successor President Joe Biden extended it repeatedly, with its expiration now scheduled for May 1.

A study from the New York Fed found that about two-thirds of borrowers were able to benefit from the moratorium, but for the remaining one-third who had to continue making payments on student loans, defaults on other debt obligations increased.

Borrowers who will be affected by the May end of the moratorium “are likely to experience a meaningful rise in delinquencies, both for student loans and for other debt,” economists Jacob Goss, Daniel Mangrum and Joelle Scally wrote in a blog.

For those who had loans not covered by the pandemic forbearance, the authors found a 33 percent higher default rate on non-student and home loans than among those who did not have to worry about their student debt.

Biden has faced pressure to cancel part of the student debt outright, including from 85 elected officials from his Democratic party who sent him a letter urging him to do so in January.

According to a June 2021 report from the Fed, the total amount of student loans in the United States is at $1.7 trillion, the second largest share of household debt behind loans for real estate.

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