Individuals with student loans that had their payments paused during the pandemic are now falling behind on other credit products, according to data released this week by the Consumer Financial Protection Bureau. More than 7% of student loan borrowers who were not in default at the start of the pandemic are now having difficulty paying other debts, compared with 6.2% at the start of the pandemic. For those who were in default at the start of the pandemic, 12.5% are now struggling to pay their other credit products, compared with 9.8% two years ago.
The report suggests that the debt cancellation plan announced by the federal government, which will cancel up to $10,000 in federal student loans ($20,000 if there are Pell grants involved) for individuals making less than $125,000 per year. The plan is being challenged and an Appeals Court has blocked the relief plan from moving forward while those legal challenges play out. More than 22 million individuals applied for student loan debt cancellation in the program’s first week, according to the White House.
Nearly half of consumers have seen the amount they pay on their credit products every month increase by at least 10% during the pandemic, according to the CFPB’s report.
The CFPB has identified five risk factors that could impact the amount to which individuals with student loans will struggle once the payment moratorium ends later this year: pre-pandemic delinquencies on student loans, pre-pandemic payment assistance on student loans, multiple student loan servicers, delinquencies on other credit products since the start of the pandemic, and new non-medical collections during the pandemic. The number of individuals with at least two of those risk factors has increased to 5.5 million, from 5.1 million earlier this year.
