Since late March, most federal student loan borrowers have had expected payments and collections on their loans paused and interest set to 0 percent. This pause has resulted in improved credit scores but has not substantially changed indicators of financial distress, such as holding utilities collections debt.
Payments and collection actions on US Department of Educationheld student loans, which make up the majority of student loans, have been suspended because of the pandemic, and loans are not accruing interest during this time. This pause, implemented by the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act, is intended to provide financial relief for student borrowers and has been extended to the end of the year by executive action.
The financial effects of the student loan pause are likely to be different for different borrowers. Some may have seen no change in their finances at all, as a large share of borrowers-about half of Direct Loan borrowers-were not in active repayment on their loans before the pandemic, and some borrowers in repayment were making $0 or comparatively low payments through federal income-driven repayment plans. The impact may actually be most substantial for defaulted borrowers, who are avoiding wage garnishment, tax offsets, and other collections penalties during the pause.
To understand the effects of the pause on borrowers, we look at a sample of credit records collected by one of the three major credit bureaus. We focus on people who had any student loans in , before the implementation of the student loan pause and most COVID-19 changes, and follow them into .
Credit scores have increased for student loan borrowers during the student loan pause
A constellation of policy changes related to the pandemic, such as mortgage forbearances, federal stimulus checks, temporary business closures, and moratoriums on evictions and foreclosures, have likely affected personal credit balance sheets.