Since the start of the pandemic, most federal student loan borrowers have had their payments paused, and interest rates are set at zero. But not every American has been able to take advantage of these benefits, including those with private student loans and Family Federal Education Loans (FFEL).
It’s what happened with these borrowers that may help predict the outcomes for the more than 43 million Americans with federal student loans when the freeze is lifted, according to a new report from the Federal Reserve Bank of New York.
The student loan moratorium put in place in March 2020 has had a number of benefits: Many federal student loan borrowers were able to squirrel away more savings, pay down other forms of debt, make on-time payment for monthly bills, and some even saw a boost in their credit scores. But only about 18% of federal loan borrowers took the opportunity of 0% interest rates to pay down their loans during the pandemic, according to the New York Fed’s research.
While most federal student loans remain under the payment freeze through May 1, 2022 (and many experts predict that will be extended yet again), emergency forbearance programs for other borrowers mostly lapsed by the end of 2020, according to the New York Fed’s research. Specifically, about 10% of FFEL borrowers and 7% of private borrowers entered forbearance during the pandemic period. But those programs lapsed by the end of 2020.
The outcome for those without a payment freeze varied. The New York Fed found that on average, those with private loans actually increased their rate of pay down during the pandemic. But researchers noted that private student loan borrowers also tend to have historically lower delinquency rates and higher credit scores.
Perhaps more tellingly, many FFEL borrowers—who have only slightly higher credit scores and better delinquency rates than the average federal borrowers—struggled with their loan payments during the pandemic. Delinquency rates for these borrowers increased shortly after the forbearance period ended—and not just on their student loans.
Compared to federal student loan borrowers still in forbearance, researchers found FFEL borrowers experienced 33% higher delinquency rates on debts like credit card balances and car loans after exiting forbearance.
“The difficulties faced by these borrowers in managing their student loans and other debts suggest that direct borrowers will face rising delinquencies once forbearance ends and payments resume,” researchers write. They estimate that delinquency rates for federal student loans could hit as high as 12%. By comparison, the delinquency rate for direct federal student loans was about 5.3% as of February 2020.
Most expect that restarting student loan payments is going to be chaotic, especially because it’s been more than two years since the vast majority of Americans have made any payments. Some borrowers, for example, haven’t ever made any payments on their student loans because they graduated during the pandemic. Meanwhile, millions of borrowers had their loan servicer change during the pandemic, meaning at minimum, they may need to update their contact information and repayment terms.
New York Fed researchers say a lot of the outcome depends on what steps policymakers implement to soften the blow of payments restarting. For example, there have been some proposals that would require federal servicers not report delinquencies for some amount of time after payments start back up to provide some cushion. But that would be only a short-term solution.
This story was originally featured on Fortune.com