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Student Loans Come Home To Roost

Student loan payments that were paused during the pandemic are expected to resume in August. A new research paper shows that this loan freezing harmed borrowers more than it helped.

In March of 2020, President Trump announced a 60-day moratorium on federal student loans due to the financial hardship of the pandemic. The moratorium was extended eight times and is still in place. Did it help borrowers?

It did not. The paper shows that people who had their payments paused took on more private debt than people who continued to pay on their loans. While those with paused loans saw an increase in credit scores and a decrease in delinquencies, they took on an average of $1,800 in extra debt for credit cards, mortgages or car loans. They also took on an additional $1,500 in student loan debt.

This is an interesting, if tragic, lesson in financial behavior and education. Consumers may not have understood how this could harm them in the long run.

Related to student loans, President Biden vetoed a bill that would overturn the student loan forgiveness plan that he announced last year. This means that the program will go to the Supreme Court where it most likely will be struck down.

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