More than 500,000 in California will struggle to pay student loans once pause ends, study finds
Nearly 545,000 California student loan borrowers will be at “high risk of struggling to repay their loans” once the federal payment pause ends May 1, a new California Policy Lab study said Wednesday.
The federal pause, which has been extended three times, began in March 2020, as the COVID pandemic began, as a way to relieve pressure on strapped lenders.
“Put plainly, the pause on student loan payments worked,” said Dalié Jiménez, director of the Student Loan Law Initiative at University of California, Irvine School of Law.
President Joe Biden is said to be considering extending the pause again.
The study by the nonpartisan Policy Lab grouped borrowers into three camps:
▪ Possible Strugglers: These are about 545,000 Californians thought to be at high risk of missing a payment.
They’re in this group if they were delinquent or in default on any loan in the year before the pause, or if they were delinquent on a pause-ineligible loan during the pause period. They’re also in this group if their December 2021 credit score was unusually low or if they had any new collections or bankruptcies between March 2020 and December 2021.
Nationally, the study estimated 7.8 million borrowers nationally are in this category.
▪ Likely Repayers. About 1.4 million borrowers in the state are in this group if they made voluntary payments on their paused loans, paid down principal on other debt during the pause, took out a new mortgage or had a decent credit score.. Nationally, 13.5 million people are in this group.
▪ Unknowns. About 588,000 Californians did not “exhibit clear positive or negative patterns in their credit records, so were placed in this group,” the study said.
It noted that “repayment of student loans is the more common behavior among student borrowers generally, but that the upheaval from the pandemic may lead some in this group to struggle with repayment.” Nationally, this group has an estimated 6.8 million people.
The average borrower’s overall monthly debt obligations dropped $210, said study co-author Vikram Jambulapati, a graduate student research fellow at the Lab. The average amount owed by the paused borrowers is $36,800. Average age of the borrower is 36, with 15% over 50.
The study found other benefits: Better scores, fewer delinquencies, and lower use of revolving credit. The average credit score among paused borrowers went from 640 to 668. Delinquency rates on the student loans, 7.3% before the pause, dropped to zero.
This story was originally published March 23, 2022 at 8:40 AM.
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