The pandemic-era freeze on student debt payments has “dramatically” improved credit scores for Americans who borrowed money to pay for college, the Federal Reserve Bank of New York said, Bloomberg News reported. About 30 million people saw improvements in their risk profile, with the biggest gains going to borrowers who were delinquent before the pandemic, New York Fed economists said in a blog post on Tuesday. They were summarizing the findings of an annual report on US student debt, which exceeds $1.7 trillion in total. The moratorium on repayments and interest charges for federal student loans has been in place since the pandemic began in early 2020. It’s currently set to expire on Aug. 31, though President Joe Biden’s administration is weighing another extension, as well as a partial debt forgiveness for some borrowers. The share of student-loan balances held by subprime borrowers fell to 26% in 2021, from 36% in 2019. That’s primarily because loans owed to the federal government that were delinquent before the pandemic were marked as current under the forbearance policy, putting millions of households on a sounder financial footing. “The end of forbearance will have impacts on credit scores, borrowing, and household cash flow over the coming year for the 38 million federal borrowers that have benefited from the pause,” the New York Fed researchers wrote. “Some borrowers will enter delinquency or default.”
