Americans with student loans are about to get a stark wake-up call on their borrowings as government relief programs phase out, according to a blog post by the Federal Reserve Bank of St. Louis, Bloomberg News reported. While federal stimulus programs have kept many low-to-moderate income households afloat during the pandemic, most student-loan payments are scheduled to resume after May 1. That will usher in a transition period of consumer-debt relief in which defaults are poised to rise, the regional Fed bank said. “Serious delinquency rates for student debt could snap back from historic lows to their previous highs in which 10% or more of the debt was past due,” Lowell Ricketts, a data scientist for the Institute for Economic Equity at the St. Louis Fed, said in the post. Most borrowers have been financially stronger during the pandemic thanks to government-relief programs, the New York Fed said in a separate report Tuesday. Median credit scores were higher for all income groups as of the third quarter of 2021 compared with before the pandemic, it said in its report, based on data derived from Equifax. Bankruptcies also declined substantially. However, student-loan default rates remain more than three times higher among borrowers in low- and moderate-income areas than their wealthier counterparts. Low-wage workers lost jobs at five times the rate of middle-wage workers in 2020, while high-wage employment increased, the report said.
