Here’s How Much Student Loan Borrowers Will Owe When Payments Restart

Federal student loan payments will resume this spring, and the average borrower’s balance may surprise you: According to a new government estimate, it’s little less than $19,000.

Borrowers of federal “Direct” loans — the most common student loan — have benefited from an automatic suspension on loan payments for more than two years.

Meanwhile, interest rates on those loans have remained zero, owing to emergency legislation to mitigate the pandemic’s economic consequences and five successive renewals of the student debt relief part.

Unless and until the program is extended for the sixth time — or unless and until federal student loan debt is eliminated — that assistance will expire on May 1.

“Since March 2020, over 37 million borrowers have been exempt from student loan payments, resulting in an estimated $195 billion in waived payments through April 2022,” analysts at the Federal Reserve Bank of New York noted in a paper issued Tuesday.

Researchers classified the amount of money owed by borrowers into three loan types in the report:

  • Federal Direct loans, which account for the vast majority of borrowers
  • Private student loans are available from a variety of private lenders.
  • Federal Family Education Loans (FFEL), a well-known but now-defunct federal program that insured loans made by commercial lenders.
  • The first type of debt is the only one that was automatically qualified for the March 2020 student loan moratorium.

According to the New York Fed, the typical balance due by a borrower of federal student loans is $18,733.

Of course, this entire amount will not be payable at once; rather, monthly payments will resume shortly. To put this in context, the average monthly payment on a student loan is around $222, according to independent Federal Reserve research.

Direct federal student loans make for the lion’s share of overall student loan debt, accounting for $1.3 trillion of the $1.7 trillion total student loan debt.

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Borrowers of federal student loans are in danger.

When or if federal Direct student loan payments resume, analysts predict that borrowers will face a greater risk of falling behind on other debt obligations – not only student loan payments.

“We anticipate that after forbearance expires, Direct borrowers are likely to see a significant increase in delinquencies, both for student loans and other debt,” the researchers stated in the paper.

This is partly because borrowers of Direct federal loans often have poorer credit ratings and more student loan debt than borrowers of private student loans.

Student loan debtors’ credit ratings and outstanding debt

The following table compares federal Direct loan recipients to private loan borrowers:

Credit score: The median credit score of direct loan borrowers is 654, compared to 713 for typical private loan borrowers. The average Direct loan borrower is 33 years old, whereas the average private student loan borrower is 39.

Outstanding debt: The median balance on a direct loan is $18,773; the typical balance on a private loan is $14,087. Experian reports that the average credit score for 30-somethings is about 667, while the general average is 695.

According to the NY Fed’s study, the typical federal student loan borrower has a below-average credit score, whereas the typical private loan borrower has an above-average credit score.

Additionally, while $19,000 in student loan debt per borrower may appear to be a small amount, the NY Fed accounts for total student debt.

While headlines frequently reference five-figure and even six-figure student debt, these estimates generally refer to debt incurred by college graduates with bachelor’s or master’s degrees.

The New York Fed’s data set covers certificate and associate’s degree programs and the debt incurred by borrowers who did not finish their program.

While this sort of debt impacts many borrowers, it also reduces the median and average debt per borrower.

Will there be another extension of the student loan forbearance program?

With fewer than 40 days until the last extension of the student loan forbearance program ends, several senators have urged President Biden to grant more assistance, ranging from another extension of the moratorium to total cancellation of federal student debt.

Experian, Equifax, and TransUnion have declared that they will omit most medical debt from their credit reports. Certain legislators advocate for a similar approach to student loan debt, which would bring some relief but is far from a solution.

“Suspending delinquencies will undoubtedly keep payment difficulties from appearing on a borrower’s credit record and allow borrowers to ease into repayment more gradually,” the NY Fed researchers concluded, “but these repayment challenges will remain hidden.”

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